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Microsoft Will Not Buy Nook Says Highly Placed Source

Last Wednesday TeleCrunch reported that Microsoft Corporation (NASDAQ: MSFT) was planning to offer Barnes & Noble (NYSE: BKS) $1 billion for NOOK Media LLC. Investor jubilation ensued and by Friday Barnes & Noble shares had jumped 31 percent, according to The Wall Street Journal.

Monday, blog site Insider Monkey reported it had heard from a “highly placed source” inside Microsoft who said last week’s report by TeleCrunch was wrong and that Microsoft, in fact, had no plans to buy NOOK. Barnes & Noble stock dropped almost 10 percent.

And so it goes. Rumors come and rumors go. One day it seems Barnes & Noble’s struggles with its Nook division are over. The next, all hopes are dashed. Investors would like to have had some hope. In its latest quarterly filing, Barnes & Noble reported year-over-year revenue of -29.9 percent for the Nook division. The company itself showed both a negative gross margin and a revenue decline.

Microsoft, which has a 17 percent stake in Nook, has troubles of its own. Some thought buying Nook Media would help by giving the company access to a low-cost tablet to complement its high end Surface tablets.

The Insider Monkey source gave credible reasons for squelching the rumor. Although Microsoft’s supposed motivation for buying Nook included porting Windows 8 to replace the existing Google Inc.’s (NASDAQ: GOOG) Android OS, the source said from a technical standpoint it isn’t possible. This, if true, eliminates a huge incentive for Microsoft to get involved in the first place.

The question that remains is: Why did Microsoft invest in Nook then? Absent full ownership of Nook Media, the Redmond, Washington company still has access to Barnes & Noble’s college bookstore division, an important market to Microsoft.

Plus, as The Washington Post reported, the deal resolved a suit against Barnes & Noble filed by Microsoft in which the company alleged that Barnes & Noble owed licensing fees to Microsoft for patents used in the Android platform.

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