Microsoft's $300 million investment in the still-unnamed subsidiary, which will include B&N's digital and College businesses, gives it a 17.6 percent equity stake in the company, valued at $1.7 billion. B&N will own the other 82.4 percent of the subsidiary, which will have an ongoing relationship with the company's bookstores.
Shares of B&N are up $10.41 (76%) to $24.09 in morning trading.
Why this matters
Microsoft's investment is significant because it could make Barnes & Noble's Android-based Nook a more formidable competitor to Amazon.com Inc. (Nasdaq: AMZN)'s Kindle Fire -- the best-selling Android tablet on the market today -- especially if a switch to the Windows 8 operating system is planned. (See OS Watch: Amazon Leads the Android Tablet Pack.)
Microsoft and B&N haven't confirmed if the next Nook device will run Windows 8. Right now their sights are set on a reading app and digital book store for Windows 8 devices, but the partnership is clearly aimed at competing against the Fire, as well as higher-end tablets such as the Apple Inc. (Nasdaq: AAPL) iPad.
The partnership also has interesting implications for the patent litigation scene. Microsoft was suing Barnes & Noble for patent infringement, but the two have worked out a royalty-bearing license under which B&N will license Microsoft's patents related to its Nook eReader and tablet products. As FOSS Patents blogger Florian Mueller points out, that leaves Motorola as the only company embroiled in patent litigation with Microsoft. All the other Android handset makers pay Microsoft royalties for patents related to Android. (See Making Sense of the Handset Patent Plays.)
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— Sarah Reedy, Senior Reporter, Light Reading Mobile