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Bertelsmann takes Barnes stake

In a surprise move, barnesandnoble.com postpones its IPO and allows Bertelsmann to take a 50 percent stake in it instead.

In a surprise move, Barnes & Noble today announced that it would postpone IPO plans for its online book retailing site and allow German publishing giant Bertelsmann to take a 50 percent stake in it instead.

Under the terms of the deal, Bertelsmann will pay book giant Barnes & Noble $200 million for its stake in the barnesandnoble.com joint venture. In return, Bertelsmann apparently will have an outlet for selling books in the United States.

Bertelsmann still plans to launch its BooksOnline service in several European countries next month.

The deal also calls for both companies to contribute $100 million in capital to the joint venture.

"[The deal] makes life easier for Barnesandnoble.com because it's easier to operate as a private company," said Lise Buyer, director at Credit Suisse First Boston. Buyer said she expects Barnesandnoble.com, like most Internet companies with new capital, to spend the funds on market development and advertising.

"This gives Barnes & Noble a powerful strategic partner and significantly reduces the financial losses that the .com subsidiary would have generated," said Christopher Vroom, managing director for BT Alex Brown. "The risk-sharing will allow both companies to invest more aggressively and should bring about more aggressive international expansion."

Analysts don't expect Amazon to be supplanted as the market leader anytime soon, however.

"Amazon remains the undisputed leader in the business," Vroom said. "But it does make for a much more interesting competitive landscape."

Others said the deal with the German publishing giant actually could help solidify publisher support behind Amazon.

"Other publishers will presumably be nervous about what kind of promotion they will get on the Barnesandnoble.com site," First Boston's Buyer said. "If I'm another publisher I have a great deal of incentive to make sure Amazon stays healthy."

Barnesandnoble.com, launched in May of 1997, has become one of the 25 fastest-growing Web sites in the world and is the sixth-largest e-commerce Web site, according to Media Metrix. The site has had more than 700,000 customers and generated $22 million in revenues for the six-month period ending August 1.

"We are delighted to enter this exciting new phase of our e-commerce expansion with a partner of Bertelsmann's stature," Leonard Riggio, chairman and CEO of Barnes & Noble, said in a statement. "Their extensive expertise in direct marketing and preeminent position as a media company will strengthen our capital structure, enhance the quality of our offering, and, most profoundly, provide barnesandnoble.com with immediate access to global markets."