Potential Nook Spinoff: Unlocking Value But At What Cost?

In a press release today, Barnes & Noble announced its intention to explore a potential separation of its successful Nook business in order to "unlock that value" and build upon its rapid growth (the Nook business will have an estimated $1.5 billion in revenue this year, according to the company). As PaidContent.org notes, international expansion could be a key motivation for the move.

I have been impressed with how Barnes & Noble has managed its Nook business thus far and I imagine that they have good reasons for exploring this separation. Nook has grown rapidly, but continued growth and international expansion will take sustained investment that B&N shareholders may not have the patience for. However, the Nook business has benefitted from synergy with Barnes & Noble in two key areas: 1) Barnes & Noble's channel (retail stores) and 2) Barnes & Noble's publisher relationships. It's not clear how a separate Nook business would function without the benefit of Barnes & Noble's retail stores and publisher relationships.

Nook has fueled Barnes & Noble's growth: What will be the value of Barnes & Noble without the Nook business? Where will the growth come from?

A key model for Barnes & Noble to consider is that of News Corp. and The Daily. News Corp. owns The Daily but it's managed independently, with its own P&L. The best scenario for B&N may be to pursue a similar structure, giving Nook the independence to grow and attract new investment but maintaining the synergy between Nook and B&N's retail stores.