Barnes & Noble Inc plans to buy Barnes & Noble College Booksellers Inc for $596 million, in a deal that will expand the retailer's store base while providing entry into the burgeoning digital textbook book arena.

Barnes & Noble Inc, a chain of more than 750 bookstores, and the college business operated as a private company until Barnes & Noble Inc went public in 1993. The two businesses were separated in 1986 when the company needed to raise money to buy B. Dalton Booksellers, now part of Barnes & Noble Inc.

The acquisition could cement Barnes & Noble's fledgling foothold in the digital textbook arena, which some analysts believe represents the largest opportunity for makers of digital reading devices.

Barnes & Noble said the deal should increase earnings per share by 30 percent to 35 percent on an annualized basis, based on its full-year forecast for $1.10 to $1.40 per share given in May.

Like other brick-and-mortar booksellers, Barnes & Noble has grappled with a slump in sales in the $25 billion domestic book market in recent years as more readers make their purchases online.

But the textbook industry -- a $5.2 billion business in books from kindergarten to 12th grade and a $5 billion business for higher education, according to Credit Suisse -- is considered a growing opportunity as more schools introduce computers and e-books into the classroom.

Last month, Barnes & Noble unveiled an online store for digital books, touting it as the world's largest, and said it would be the exclusive provider of digital content for the upcoming Plastic Logic e-reader.

That device is expected to compete with Amazon.com Inc's Kindle, readers made by Sony Corp and a handful of other devices, including a rumored tablet-like offering from Apple Inc that analysts say could come as early as this fall.

Combining both businesses on a single branded platform will enable the combined company to cross-promote print and digital offerings to all of our customers, said Barnes & Noble Chairman Leonard Riggio.

Barnes & Noble's shares climbed by as much as 20 percent in morning trade to their highest level since September, before retreating to settle 5.2 percent higher.

A special committee plucked from Barnes & Noble's board of directors evaluated the deal, because College Booksellers is owned by Barnes & Noble Chairman Riggio.

From day one, it will add very predictable and growing revenues and a solid cash flow stream to (Barnes & Noble), thereby lowering our risk profile, said Irene Miller, the committee's chairwoman, on a conference call with analysts.

The value of transaction is $460 million, excluding the cash that College Booksellers is expected to have on hand at the time of closing.

College Booksellers -- which will become a wholly-owned subsidiary of the U.S. bookseller -- generated revenue of $1.8 billion in its fiscal year ended May. Barnes & Noble posted revenue of $5.1 billion in its fiscal year ended in January.

The college business, which operates some 624 stores, serves nearly 4 million students and more than 250,000 faculty members at colleges and universities across the United States.

Buying the college book business gives the retailer control of the Barnes & Noble brand, which it licenses from the college bookstore. That will eliminate annual royalty payments of approximately $6 million, according to Barnes & Noble.

DIGITAL OPPORTUNITY

In connection with the acquisition, Barnes & Noble also said it had received commitments for a $1 billion, four-year revolving credit facility that would replace the companies' existing facilities.

The company added that the management team of College Booksellers would remain in place.

Barnes & Noble shares, which are up 71 percent since January, were up 5.2 percent, or $1.25, to $25.29 in afternoon trade on the New York Stock Exchange.

(Additional reporting by Ian Sherr and Brad Dorfman, editing by Gerald E. McCormick and Steve Orlofsky)

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