I owe a quarterly update. I'll do that on Friday or this weekend, as of 4/28.
For now - quick note.
Barnes and Noble announced an investment by Microsoft today of $300 million for 16%, valuing the Nook business at $1.7 billion. If there is one guy who is smiling right now it's John Malone.
That man has a better track record than Warren Buffett. When it comes to media companies, no one invests better than Malone. His annual return has to be astronomical.
This is the guy who bought Sirius XM radio right before it was going bankrupt - at 5 cents per share. Today that company is trading at over $2.
What is the investing lesson with Barnes and Noble? It's ok to follow someone into a trade if they are really smart and you understand their investment. But you have to read the SEC documents relating to the investment - in the case of Barnes and Noble, Malone purchased preferred shares at $17 a few months ago. The stock tanked to $10 immediately. Reading the SEC document, you can see that Malone gets paid is if the stock goes up. There's no other way for him to compound his return, because his interest rate was 8% annually, not enough to get him to bite unless he liked the underlying stock. So investing at $10 would have been a killer decision.
Today it's at $22, and it still appears to be a good investment. Microsoft just valued the Nook at $1.7 billion (Malone had to have a hand in that deal - the market cap of the whole company before MSFT investment was $800 million, so MSFT could have bought the whole company, then sold off the parts and kept 100% of the Nook business for itself for the same $300 million it just paid for 16%). In addition, Microsoft will promote the Nook app in Windows 8 - a huge deal, because that system will go into millions of homes. And the company's market cap is $1.3 billion as I write, $400 million less than MSFT valued the Nook, that's and not including the retail business which is profitable.
Good job again, Mr. Malone. And BKS is still a good buy.
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