The joint venture between Microsoft and Barnes & Noble designed to revive the ailing Nook Media business is unraveling.
The companies announced Thursday that B&N will buy out the Windows maker's stake in Nook Media -- the corporation jointly owned by Microsoft and B&N -- for $62.4 million in cash and 2.7 million shares of B&N. In addition, all ties between the companies in Nook Media, including contractual obligations, commercial agreements and international content acquisition, will be revoked.
Microsoft and B&N announced their partnership and the formation of the new corporation in 2012, under which the software giant invested $300 million for a 17.6 percent equity stake in the company valued atoverall. Although its unclear the size of the stake the Microsoft currently holds -- shares could have been sold or transferred over the last two years that would modify equity percentages -- the relatively small amount of cash that B&N is paying Microsoft suggests that Nook Media is not worth all that much.
The partnership between the companies was designed to help B&N offload some of its Nook business, namely its digital and college units within the Nook division, from its main operations. It also provided Microsoft an opportunity to break into the e-book industry and potentially profit from the partnership.
However, over the last two years, the Nook business continued to falter and B&N has gotten out of the hardware side of the business entirely, relying on a partnership with Samsung to offer new Nook tablets and e-readers. In an earnings report on Thursday, B&N revealed that its Nook business saw revenue fall 41 percent year over year to $63.9 million during its fiscal second quarter that ended November 1 . Hardware sales were down 64 percent, while content sales were down 21 percent. The division's operating loss stood at $37.6 million.
"As the respective business strategies of each company evolved, we mutually agreed that it made sense to terminate the agreement," a Microsoft spokesperson said in an e-mailed statement, providing little insignt into the decision to nix the marriage with Barnes & Noble.
Still, it might have something to do with Microsoft CEO Satya Nadella. Since taking the helm in February, Nadella has said that he wants to focus Microsoft's business on the core elements of its operation, including the cloud and mobile. It's possible Nadella viewed the Nook deal as outside of the core tenets of his strategy.
B&N said Thursday it expects the separation to be complete by the end of August.
Barnes & Noble did not respond to a request for comment.
Update, 8:54 a.m. PT: Adds Microsoft's statement.