Microsoft already owns a substantial stake in Nook Media, which makes e-readers and tablets, but the technology website TechCrunch reported Microsoft was proposing a $1 billion offer to buy all of Nook's digital assets. Nook Media also includes the college bookstore chain, though it was not clear if that business would be included.
The report also suggested that Nook would stop selling Android-based tablets entirely by the end of fiscal 2014 in favor of distributing content via other publishers' platforms.
Microsoft first acquired a roughly 17 percent stake in the Nook Media unit from Barnes & Noble a little more than a year ago, in a deal that valued the entire business at $1.7 billion. In December the British publisher Pearson Plc bought a stake in the unit at a $1.8 billion valuation.
But sales have disappointed since. Revenue dropped 26 percent in the most recent holiday quarter, as Nook sold fewer units and had to cut prices. Just this week, the company slashed the price of its best tablet by one-third as a special promotion for Mother's Day.
Barclays analyst Alan Rifkin, in a note to clients Thursday, said a lower valuation for the unit was appropriate and that $1 billion was even higher than he had modeled.
It was not clear from the TechCrunch story whether Microsoft has formally made an offer to Barnes & Noble's board, or whether Barnes & Noble has replied. Barnes & Noble declined to comment and Microsoft was not immediately available.
Shares in the bookselling chain rose to $21.89 in early trading from a $17.77 close on Wednesday. The stock last traded at those levels a year ago, around the time of the initial Microsoft investment.
The stock is also heavily shorted, with almost 36 percent of its float sold short as of April 15. Short sellers borrow stocks and sell them, betting the price will fall. Where short interest is high, that can exacerbate a rally, as people rush in to cover their positions.
Credit Suisse, in a note to clients, said the suggested terms of the Microsoft offer implied that Barnes & Noble was worth about $27 per share.
Could speed other sales
Earlier this year, Barnes & Noble chairman Leonard Riggio said he wanted to buy the company's chain of nearly 700 namesake bookstores. Selling off Nook could simplify that process.
Barnes & Noble first indicated it might spin off the Nook business in early 2012. The retailer has spent hundreds of millions of dollars on the unprofitable unit, trying to make the devices competitive against devices by Amazon, Apple and Google, among others.
The latest IDC market share data for tablets, released earlier this month, leaves Barnes & Noble out of the industry's top five vendors, suggesting it has less than 2 percent of the overall global market.
One analyst following Barnes & Noble said the deal, if it happens, would be dramatic but not necessarily surprising.
"We must be careful here because details are lacking, but with devices phasing out, we see sale of the digital assets as an effective sale of the entire Nook business, unless co-ownership or leasing of digital content is arranged," Stifel analyst David Schick said in a research note.
© Thomson Reuters 2013