Editor's Note: This article was initially published on October 3, 2018.

New York CNN Business —

Stock in Barnes & Noble surged by over 20% following the announcement from the board that it would explore the possibility of selling the struggling retailer.

On Wednesday, the board revealed it has established a special committee to evaluate purchase offers, including one from Len Riggio, the company's long-serving chairman and its largest shareholder, who holds close to 20% of the company.

Barnes & Noble (BKS) also announced that an unnamed shareholder had quickly accumulated a notable stake in the company. To prevent a hostile takeover, the board approved a "poison pill" strategy.

This poison pill will be activated if the unknown entity obtains 20% or more of the company's shares, allowing existing shareholders to purchase additional stock at a 50% discount, thereby diluting the shares' value.

This announcement follows the revelation from another investor who recently acquired approximately 7% of the company and indicated he had discussions with Riggio about a potential acquisition.

The board stated that Riggio plans to support any agreement recommended by the special committee with his vote.

The prospect of a sale adds another chapter to the ongoing challenges faced by Barnes & Noble, which is in search of its fifth CEO in as many years.

The retailer dismissed its most recent CEO, Demos Parneros, in early July for unspecified violations of company policy. Subsequently, it was revealed that allegations of sexual harassment and bullying had contributed to his termination.

In August, Parneros filed a defamation lawsuit against Barnes & Noble in federal court, claiming he was fired without just cause.

Barnes & Noble still operates over 600 stores and employs around 23,000 people. However, last quarter, it experienced a 6.1% decline in same-store sales compared to the same period last year.

Sales have consistently declined at Barnes & Noble for the past four years, and new strategies like smaller store layouts and a restaurant concept have struggled to attract customers.

According to Neil Saunders, managing director at GlobalData Retail, many of the stores feel uninspired, excessive in size, and cluttered, failing to provide compelling reasons for customers to visit and make purchases.

He believes the company will need to close additional stores: “Barnes & Noble must streamline its operations to ensure survival.”

While Barnes & Noble struggles, local and independent bookstores are experiencing a resurgence.

The American Booksellers Association, a trade organization, reported a 6% increase in the number of independent bookstores last year, bringing the total to 2,470.

In a significant development, Barnes & Noble experienced a stock surge of over 20% following the announcement that its board would consider potential sale offers as the company grapples with ongoing financial challenges. The board of directors has appointed a special committee to evaluate these offers, one of which has come from Len Riggio, the long-standing chairman of Barnes & Noble and its largest shareholder, owning nearly 20% of the company.

The situation has been complicated further by an unidentified entity that has continued to acquire shares in the company, thereby prompting the Barnes & Noble board to adopt a "poison pill" strategy. This tactic is designed to deter a hostile takeover by allowing existing shareholders to purchase additional shares at a 50% discount if the unknown shareholder accumulates more than 20% of the stock. This mechanism aims to dilute ownership and protect the company from unwelcome acquisition attempts.

This move to explore a sale comes at a turbulent time for Barnes & Noble, which has had an unstable leadership structure, recently firing its fifth CEO in five years. Demos Parneros, the most recent CEO, was dismissed in early July for unspecified violations of company policy, later revealed to involve claims of sexual harassment and bullying. Following his termination, Parneros filed a defamation lawsuit against the company, alleging he was fired without cause.

Despite still operating over 600 stores and employing around 23,000 individuals, Barnes & Noble’s financial performance has been troubling, with same-store sales declining by 6.1% over the last year. Its sales figures have consistently decreased for the past four years, indicating a persistent struggle to retain customers. Efforts to rejuvenate the brand through smaller store formats and the introduction of kitchen concepts have failed to capture customer interest effectively. Neil Saunders, managing director of GlobalData Retail, has described many Barnes & Noble locations as uninspiring, overly large, and cluttered, lacking a compelling reason for consumers to shop there. He suggested that the company might need to reduce its store count to remain viable in the ever-evolving retail landscape.

The challenges faced by Barnes & Noble have been exacerbated by a resurgence in independent bookstores across the country. The American Booksellers Association recently reported a 6% increase in the number of independent bookstores, now totaling 2,470 locations. This trend reflects a growing consumer preference for unique and personable shopping experiences, contrasting sharply with the challenges faced by larger chains.

The board's strategic considerations regarding a potential sale are being closely monitored by shareholders and industry analysts alike, as the fate of Barnes & Noble appears increasingly precarious. Riggio's commitment to backing any recommendations made by the special committee could pave the way for a restructuring or new ownership, which may ultimately bring a fresh perspective to the company’s operations.

In summary, while Barnes & Noble's stock has benefited from the prospect of a sale, the company's decline in sales, leadership turnover, and increased competition from independent bookstores pose significant hurdles. Questions surrounding its future viability will certainly linger as stakeholders await the outcomes from the ongoing review by the appointed special committee.