(Reuters) - Barnes & Noble Inc <BKS.N> said on Thursday a deal proposed by an activist investor to take the bookstore chain private was not "bona fide" as its chairman and founder, Leonard Riggio, would not participate and raising the required funds was highly unlikely.
Sandell Asset Management had proposed to take Barnes & Noble private with the help of current shareholders and $500 million in debt financing in a deal that valued the company at more than $650 million, or over $9 per share, the Wall Street Journal reported earlier, citing people familiar with the matter.
Barnes & Noble's shares closed up about 8 percent at $7.13. They hit a session-high of $7.80 after the WSJ report, valuing the company at $566.5 million.
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The Journal said the proposal by Sandell, which holds a 2.75 percent stake in Barnes & Noble, also called for roughly $250 million coming from company shareholders keeping their stakes and rolling them into a new private entity it would control. (http://on.wsj.com/2ANekD0)
"The company does not take Sandell's proposal as bona fide in that Sandell is the beneficial owner of 1 million common Barnes & Noble shares worth approximately $7 million, Mr. Riggio has no intention of rolling his shares into such a transaction, and the company believes a debt financing of $500 million is highly unlikely," Barnes & Noble said.
Sandell did not immediately respond to requests seeking comment.
Riggio holds a roughly 18 percent stake in Barnes & Noble, making him the New York-based retailer's biggest shareholder, according to Thomson Reuters data.
The Journal said Riggio's refusal to roll his stake into a private entity as per Sandell's plan meant the hedge fund would need to find backing from other major shareholders or put up the cash itself.
Barnes & Noble is grappling with a slump in revenue due to changing reading tastes and competition from online sellers, especially Amazon.com Inc <AMZN.O>. Its stock had lost nearly 40 percent of its value this year before the gains on Thursday.
ConsumerEdge Research analyst David Schick said private equity could make sense for the company as it "has the potential to change its strategy as a private company – work on membership, NOOK, store layout, and traffic drivers."
Sandell had in July urged Barnes & Noble to sell itself, saying the retailer could fetch at least $12 per share and attract media or internet companies seeking a retail presence.
(Reporting by Gayathree Ganesan and Vibhuti Sharma in Bengaluru; Editing by Savio D'Souza)