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The Billionaire and the Book Lover

Riggio was wary. “Ron Burkle is a deal-maker,” he later said in court, after their relationship had deteriorated into litigation. “He likes to put things together.” But Riggio really didn’t think much of the magnate’s ability to run the companies that he mixed and matched, and he certainly didn’t believe that Burkle understood bookselling. Riggio claims he told Burkle he didn’t want him buying Barnes & Noble stock, and while there was nothing he could do about that, he certainly wasn’t going to take his strategic advice about Borders. He told Burkle the same thing he was saying to everyone else: He didn’t want to sink money into bricks-and-mortar retail, not when the book business was going through sweeping change.

The two men differ on how they left the conversation. Burkle says he dropped the Borders proposal, while Riggio claims that he kept pushing it on out to the hotel’s lobby. What’s undisputed, though, is that Riggio left out one pertinent detail. At that very moment, as he disavowed any interest in expanding his retail footprint, his board was considering a proposal, ultimately approved, to acquire 624 Barnes & Noble college bookstores—the ones that personally belonged to Riggio and his wife. In all, the Barnes & Noble shareholders committed to pay them more than $500 million.

Riggio contends that it’s unfair to compare the college stores to retailers like Borders, saying they operate in a specialized niche that has proven resistant to recessionary cycles. Back in the eighties, when he started taking on debt and private- equity partners to fund his mass-market expansion, he’d kept them as a separate, very profitable corporate entity. “The world is blurred now,” Riggio says, because book buyers may soon be carrying everything they read—textbooks, novels, magazines—on a single e-reader. He explains that it had become important to “reunite” the company “for the purpose of having a single platform.” But when the deal was announced last August, Burkle was outraged, as were many others. It looked like Riggio had enriched himself at the public company’s expense, leaving Barnes & Noble indebted and deeply invested in the one sector of the market—textbooks—that appeared most likely to go digital in the short-term. In the week after the sale was announced, Barnes & Noble’s stock dropped another 20 percent, and several institutional shareholders filed suit, alleging that Riggio had “systematically abused his power” and had filled the company’s board with pliant cronies.

Burkle didn’t join the lawsuit, but he sent an angry letter to Riggio. “You don’t need to do this,” he wrote. “It’s not right for the company and it’s horrible for your reputation.” Riggio didn’t respond to the letter, but he was alarmed. He thought Burkle’s talk of “reputation” was particularly rich. In an e-mail to board members, Riggio claimed that in their past dealings, Burkle had boasted about his relationship with Bill Clinton, how it would “ultimately open doors” to leveraged-buyout opportunities. “He told me he saw himself as a ‘humanist,’ perhaps owing to his associating with the former president,” Riggio wrote. “This was all the proof I needed to my growing suspicion that he was delusional.” Riggio also complained that he was “the largest single sucker” in the ruinous investment in Source Interlink.

“What I realized then, and I now know with conviction,” Riggio wrote, “is that this guy actually believes that all the distasteful things he does are virtuous. Therefore it is an absolutely no-win situation to engage him in a game he loves to play.”

In November, Burkle bought more stock, upping his stake to almost 20 percent. The Barnes & Noble board convened a hasty conference call. According to several sets of handwritten notes taken by participants, Riggio outlined what he saw as a “clear and present danger.” Riggio was concerned about another major shareholder, Aletheia Research and Management, whose chief executive was on friendly terms with Burkle and had followed him into several previous investments. Burkle has consistently denied that the two firms are working in concert, despite several suspiciously timed meetings. But Riggio raised the specter of the investors’ joining to take “creeping control.” Riggio told the board he had no desire to negotiate with Burkle. One participant wrote in her notes: “He’s dangerous with other people’s money.”

The board voted to insert a “poison pill” into the corporate bylaws—a defensive measure designed to prevent anyone other than Riggio from amassing more than 20 percent of Barnes & Noble’s stock. In response, Burkle sent another bellicose letter. “You took a half a billion dollars off the table and our share price took it in the chin,” he wrote, adding of the poison pill, “You threw down the gauntlet and in my mind declared war.”

The tension continued to mount over the course of this year. In May, Burkle filed a lawsuit in Delaware accusing Riggio of using Barnes & Noble as a “personal piggy bank” and seeking to void the poison-pill measure. During the a trial in July, Riggio sat with arms crossed, glowering as Burkle’s attorneys tried to paint him as a self-interested tyrant. They played a snippet of a taped deposition, in which the company founder said the poison pill “was about me and my family.” Ultimately, however, a Delaware judge issued a judgment in Riggio’s favor, writing that “being neither Goober Pyle or Kenneth Parcell,” he didn’t believe Burkle when he denied he was collaborating with Aletheia, and finding that Riggio’s fear of a takeover threat was therefore justified.