How Microsoft Turned $300 Million Into $116 Million

Barnes and Noble has abandoned its technology joint venture with Microsoft, and is buying back all shares in the joint venture for $US62 million in cash and Barnes & Noble stock worth about $US54 million, according to a new SEC filing.

That leaves Microsoft with a loss of about $US238 million on the deal. It also gives Barnes and Noble a cleaner exit if it wants to spin off the Nook business.

The joint venture kicked off in April 2012 when Microsoft invested $US300 million for a 17% stake in Barnes & Noble. The companies announced the deal with a lot of fanfare, but the details were always vague — they built a Nook app for Microsoft’s Windows 8 operating system, and earlier this year, they said they were working on something called a “Microsoft Consumer Reader,” which may have been a new kind of e-reading app. It never emerged.

The deal also ended a lawsuit between the companies.

Since the early 2000s, Microsoft has been approaching companies to licence its patents the company believes are being violated. Many companies, including a lot of Android resellers, have agreed, and Microsoft may be earning more than $US2 billion a year from these licenses.

But Barnes & Noble initially refused to take a licence for its Nook reader, which was based on Android. And in the subsequent lawsuit, it started talking about some of the details of the negotiations with Microsoft, like its demands for between $US5 and $US15 per device, and the precise patents that Microsoft claimed were being infringed.

The joint venture made that lawsuit go away. So even if Microsoft never got much else out of the deal, one could argue that paying a couple hundred million to keep its patent licensing program cranking along was a pretty good bargain.

Note: This story originally misstated how much Barnes & Noble paid to get out of the deal. The actual figure, including stock, was $US116 million.

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