Malone's Barnes & Noble bid a bet on the Nook

NEW YORK (AP) -- Why buy a bookstore?

John Malone, who made a fortune in cable television, is offering $1 billion for Barnes & Noble -- trying to jump into a business so sick that its No. 2 competitor, Borders Group Inc., is on life support.

The difference is that Malone and his Liberty Media conglomerate aren't betting on the books-and-mortar past, analysts say, but the promise of the electronic future.

Barnes & Noble's Nook electronic reader now accounts for 28 percent of the market for those devices. And the Nook has the potential to go beyond books to deliver all types of digital products, including music, magazines, TV shows and movies. That makes it a competitor not just to Amazon.com's Kindle but also to Apple's iPad.

"This deal is all about the device," said Sherif Mityas, a partner in the retail practice of global management consulting firm A.T. Kearney. "As Apple proved, you need to have the content and the device. Malone has the content, and Barnes & Noble has the device. You're not buying the stores; you're buying the Nook."

Malone's empire, Liberty Media Corp., operates three publicly traded companies -- Liberty Interactive Inc., Liberty Starz Group and Liberty Capital Group -- through which it runs home-shopping network QVC and movie channel Starz. It also holds stakes in numerous other online, media and communications companies. Some believe that QVC could be used as a marketing vehicle for Barnes & Noble's Nook.

With the backing of a media conglomerate, Barnes & Noble's digital business would be able to compete better with Amazon, Apple and others, said Gary Balter, a retail analyst at Credit Suisse.

Barnes & Noble's 700 stores may appear to be an albatross. But they could be transformed into places that highlight mostly digital devices and content and mimic Apple's successful stores. Barnes & Noble has already cleared space at the front of its stores to display the Nook and push e-books.

"You don't want the old-fashioned bookstore customer who goes in and sits and reads a book for two hours. You want people going in there who are hungry for experience," said Richard Hastings, a consumer strategist with Global Hunter Securities.

Barnes & Noble's shares surged almost 30 percent on Friday and passed Liberty's bid of $17 a share in cash, closing at $18.33. The companies haven't yet signed an agreement, and the deal is still subject to closing conditions, including one that founding Chairman Leonard Riggio keep a stake in the company and remain in a management position, Barnes & Noble said.

Barnes & Noble reiterated Friday a committee of its board is evaluating the offer.

Barnes & Noble had put itself up for sale in August in response to pressure from billionaire activist shareholder Ron Burkle, but the company didn't find much interest.

Traditional book sellers have been facing increasing competition from online retailers like Amazon.com and discounters like Wal-Mart Stores Inc. And heavy readers are quickly embracing e-books.

Right now, though, Simba Information senior trade analyst Michael Norris estimates there are still at least five print book buyers for every e-book buyer.

Still, the industry thinks e-books are the future. Amazon.com said Thursday that, after less than four years of selling electronic books, it's now selling more of them than printed books. Stores have cut shelf space devoted to printed books by 15 percent over the past year, estimated Mike Shatzkin, CEO of Idea Logical, a book consulting company. Last year, he predicted that it would take five years for stores to cut space for printed books by 50 percent; now, he believes it will only take about three.

The shift has already rocked Borders Group, which filed for bankruptcy court protection in February. It has been closing stores and is reportedly in talks to sell more than half of those that remain.

While Barnes & Noble has done better than Borders, its quarterly results have been weighed down by large investments in its online and e-reader businesses. Barnes & Noble reported growth in its online store in the most recent quarter, and said both that and its bricks-and-mortar stores were helped by sales of its Nook e-reader.

Last month, Barnes & Noble added an app store and an e-mail program to its Nook Color e-reader. That brings the $249 device closer to working like a tablet computer like the iPad, which sells for twice as much. Barnes & Noble is expected to announce a new version of the Nook next week, though it hasn't said what features it will include.

Clearly, there are concerns. Norris says he would like assurance from Liberty that it's not going to look at the Nook in "a vacuum" and get rid of the stores.

"Its success has been (tied) with the physical bookstores because people are not giving up physical books," he added.

No one know knows exactly what Malone, 70, has in mind. He has typically been a pure investor, like Warren Buffett or a private equity firm, who buys companies when they are cheap and on the brink of financial ruin.

Malone doesn't have a history of putting together grand technological schemes, said Wedge Partners analyst Martin Pyykkonen. He called Malone a "financial engineer" who demands excellent returns, keeps management in place and reaps rewards when the business returns to health.

It could be there is no grand plan with Barnes & Noble, either, besides closing unprofitable stores and otherwise improving profitability. One thing that is similar with other Malone investments is Barnes & Noble's big share of its market, which could get bigger if Borders Group closes or sells more stores.

"Malone's style is to very quietly, very patiently look and watch, and when things get to his threshold level, then make his move," Pyykkonen said. "But he makes his move in a generally quiet, friendly, cooperative way, because he actually wants management to stay in there and keep running the company."

Prices at gas pump painful for 4 in 10 Americans

WASHINGTON (AP) -- As $4 a gallon gasoline becomes commonplace, drivers have made tough choices: scaling back vacations, driving less or ditching the car altogether. And a new Associated Press-GfK poll shows the impact of sustained high prices is spreading among seniors and higher-income Americans.

According to the poll, the share of all Americans who say increases in the price of gasoline will cause serious financial hardship for them or their families in the next six months now tops 4 in 10.

Overall, 71 percent said rising prices will cause some hardship for them and their families, including 41 percent who called it a "serious" hardship. Just 29 percent said rising prices are not causing a negative impact on their finances.

While those with household incomes under $50,000 were already feeling strained in March, the new poll shows financial pain is increasingly spreading to those with higher incomes. Among those with annual household incomes over $50,000, 63 percent now say rising prices are causing them financial hardship, up from 55 percent in March.

For older Americans, it's worse.

The share of seniors expressing financial hardship over gas prices hit 76 percent; it was 68 percent in March.

Nettie Cash, 65, of Dallas, Ga., is cutting back on her medicine because of the cost of fueling up her Buick. Cash is still taking her heart pills but is forgoing her inhaler and ulcer medicine for now.

"It's not easy," she said. "You have to do what you have to do."

The public's coping strategies are largely unchanged from March, with 72 percent having cut back on other expenses, 66 percent saying they've reduced the amount of driving they do and 48 percent changing vacation plans.

Since January, gas prices have shot up about 90 cents, with the national average for a gallon of regular this week at $3.96.

Financial analyst Nicole Polite in Baltimore sold her Nissan Altima recently and is taking public transportation, opting for the bus, rails and walking to get to work. Gas prices were just too high, she says, so she and her boyfriend downsized to a one-car household. She says they kept their Lexus sedan, which requires pricey premium gas.

"It's definitely a financial strain because now you have to reassess everything," said Polite, 32. "We don't go out as much. That $20 that we could have used to go to a movie -- now that money has been absorbed by the gas tank."

But analysts say relief is coming. Fred Rozell, retail pricing director at the Oil Price Information Service, expects the price at the pump to drop as much as 40 cents in the next four weeks.

Until that happens, Ross Cobb in Boerne, Texas, will still try to keep his highway miles down. Cobb says he and his wife have been driving less and curbing trips into the city for their children's clothing and other supplies.

"We coordinate all of our trips into San Antonio," said Cobb, an associate athletic director at the University of Texas at San Antonio. "We don't ever go in anymore just for one particular errand. We wait until we've got two or three things to do."

The Associated Press-GfK Poll was conducted May 5-9 by GfK Roper Public Affairs and Corporate Communications. It involved landline and cellphone interviews with 1,001 adults nationwide and has a margin of sampling error of plus or minus 4.2 percentage points.

Slide in retailers sends stocks broadly lower

NEW YORK (AP) -- Stocks closed broadly lower for a third straight week on signs that U.S. consumer demand may be weakening.

Retailers Gap Inc. and Aeropostale Inc. each lost more than 14 percent Friday after cutting their profit forecasts for the year, in part because of higher costs for raw materials and sluggish sales. That was a worrying sign for investors who had counted shoppers to lead a recovery in spending.

Gap's results pushed down other clothing companies who have been hit hard by the rising price of cotton and shoppers who are reluctant to splurge. Polo Ralph Lauren Corp. and J.C. Penney Co. each dropped 4 percent, while Urban Outfitters Inc. fell 3 percent.

The Dow Jones industrial average fell 93.28 points, or 0.7 percent, to 12,512.04. The Standard & Poor's 500 index lost 10.33, or 0.8 percent, to 1,333.27. The Nasdaq composite dropped 19.99, or 0.7 percent, to 2,803.32. Each market index fell by more than 0.3 percent for the week. The Nasdaq lost the most, 0.9 percent.

One exception to the retailer gloom was Barnes & Noble Inc. The bookseller jumped 30 percent after announcing late Thursday that Liberty Media Corp. had offered to buy the company for $1 billion in cash.

Stock indexes have been staying within a relatively small range since a May 4 plunge triggered by a sharp drop in oil prices. The Dow fell more than 200 points in two days. After several weeks of waffling, the index is trading slightly above where it was after that two-day fall.

May is traditionally a weak month for the stock market. Traders have little to base buying and selling decisions on with corporate earnings season officially over and economic news scarce. Trading has been relatively light.

A stronger U.S. dollar has also hurt stocks. The dollar rose against the euro Friday after the Fitch ratings agency downgraded Greece's debt three notches further into junk status, escalating worries about the European debt crisis.

In recent months, markets have fallen when the dollar rises against the euro because the stronger U.S. currency has signaled that European countries are still struggling to get their debt under control.

"A stronger dollar and a stronger U.S. market can coincide, but not when the U.S. economic data are weak," said Quincy Krosby, chief market strategist for Prudential Financial. "This has been a stronger dollar that has come because of another currency weakening, not a stronger U.S. economy."

Concerns about the strength of the economy pushed government bond prices higher as investors sought out safer assets. The yield on the benchmark 10-year Treasury note fell to 3.15 percent from 3.18 percent late Thursday. Bond yields fall when their prices rise.

There were a few other notable exceptions to the downward trend. Software company Salesforce.com Inc. rose 8 percent, the most of any stock in the S&P 500, after its first-quarter profit beat expectations. Movie rental and streaming company Netflix Inc. gained 1.3 percent.

Two stocks fell for every one that rose on the New York Stock Exchange. Consolidated volume came to 3.6 billion shares.