* Liberty offering $17, or 20.5 pct premium
* Liberty wants Riggio to stay involved
* B&N says special committee has not looked at deal yet
* Shares up 24.7 pct in after-hours trading. (Adds analyst comment, byline, share move)
By Phil Wahba
NEW YORK, May 19 (Reuters) - John Malone’s Liberty Media Corp LINTA.O has proposed to buy Barnes & Noble Inc (BKS.N) for $1.02 billion, nine months after the largest U.S. bookstore chain put itself up for sale.
Liberty Media is offering $17 per share, a 20.5 percent premium over Barnes & Noble’s closing share price on Thursday, in a deal that would give it a foothold in the growing e-books industry dominated by Amazon.com Inc (AMZN.O).
Barnes & Noble, which has faced years of declining print book sales, put itself up for sale last August saying its shares were undervalued.
It has been investing in developing its popular Nook e-reader, launched in 2009, in a bid to remake itself as a digital bookseller and avoid the fate of rival Borders Group Ltd BGPIQ.PK, which filed for bankruptcy protection in February.
Barnes & Noble said the Liberty Media offer has not yet been evaluated by its board’s special committee, and a spokeswoman declined to say whether any other company has come forward with an offer.
In early March, an investment banker told Reuters that the auction process had slowed to a crawl. [ID:nN04153508]
“I would view $17 as a starting point — some investors would want it closer to $20,” Morningstar analyst Pete Wahlstrom told Reuters. He says Barnes & Noble’s stock is worth $16.
Shares rose 24.7 percent to $17.60 in after-hours trading after the announcement, suggesting that investors believe other offers may be forthcoming or that Barnes & Noble shareholders will demand more.
Barnes & Noble’s founder, chairman and top shareholder Leonard Riggio, said last year that he would consider taking the company private with partners. He owns 29.7 percent of shares.
Liberty’s offer is conditional on Riggio keeping a stake in Barnes & Noble, which he built from a local New York bookstore into a national chain in the 1970’s, and stayed involved in running the company, which Wahlstrom said would be positive given his knowledge of bookselling.
Liberty Media has pursued a strategy in recent years to snap up cheap media-related assets in the hope of making an outsized return on investment.
In February 2009, Malone snapped up a 40 percent stake in Sirius XM Radio by lending $530 million to the satellite radio company which was teetering on the verge of bankruptcy. Malone was rewarded in just a few months after Sirius turned its business around and the stake is today worth more than $3.5 billion.
Riggio last September survived a proxy fight waged by Barnes & Noble’s No. 2 shareholder, investor Ron Burkle, who accused him of mismanaging the company for his family’s benefit. Burkle’s investment firm, Yucaipa Companies, owns 18.7 percent of shares.
If the deal were to go through at $17 per share, Burkle would take a loss given that he bought most of shares in November 2009, when they were hovering near $20.
Spokesmen for Burkle’s did not immediately return a request for comment.
Barnes & Noble which operates 720 bookstores, as well as a chain of college campus stores, in February suspended its dividend to save cash and build up the Nook to compete with Amazon’s Kindle and Apple Inc’s (AAPL.O) iPad.
Barnes & Noble will introduce a new e-reader at a media event in New York on Wednesday. Forrester Research estimates that Nook is the second best-selling dedicated e-reader, after Amazon’s Kindle.
Shares plummeted in February after Barnes & Noble suspended the dividend and reported a holiday quarter loss. They fell as low as $8.45 a month ago before rallying.
Reporting by Phil Wahba, additional reporting by Yinka Adegoke; editing by Andre Grenon, Bernard Orr