(Reuters) - Barnes & Noble struck a deal to buy Microsoft's stake in Nook Media LLC, ending a two-year partnership and clearing the way for the bookseller to spin off its loss-making e-reader and digital content division.
Barnes & Noble shares fell as much as 14.3 percent in early trading after the company also reported a much weaker-than-expected quarterly profit, due to lower sales of Nook devices.
The company estimated the value of the cash and share deal at about $125 million.
Nook, launched in 2009, enjoyed initial success but has ended up costing Barnes & Noble hundreds of millions of dollars as it was unable to keep pace with Amazon.com's Kindle and Apple's iPad.
Microsoft invested $300 million in Barnes & Noble's Nook e-reader in 2012 to gain a foothold in the fast-growing e-books market. As of Sept. 9, Microsoft owned about 17 percent of Nook Media through preferred shares.
Barnes & Noble said in June it would spin off its Nook Media business, which includes college bookstores, to focus on its retail book business.
"As the respective business strategies of each company evolved, we mutually agreed that it made sense to terminate the agreement," a Microsoft spokesman said in an email.
Under the agreement announced on Thursday, Microsoft will have the right to receive about 22.7 percent of total proceeds of Nook's digital business, which excludes the college bookstores, if it is sold in the next three years.
Pearson owns 5 percent of Nook Media, which had revenue of $815 million in the second quarter ended Nov. 1.
The company said it would buy Microsoft's stake in Nook Media for $62.4 million in cash and about 2.7 million in shares.
Barnes & Noble shares were trading at $20.08 on Thursday.
Barnes & Noble said it now expected to complete the separation of its Nook Media business at the end of August 2015. It had earlier expected to complete it by March.
The company said its total revenue fell 2.6 percent to $1.69 billion in the second quarter. Retail sales fell 3.6 percent.
Net income fell to $12.3 million, or 12 cents per share, from $13.2 million, or 15 cents per share, a year earlier. Analysts on average expected a profit of 31 cents per share on revenue of $1.69 billion, according to Thomson Reuters I/B/E/S.
(Additional reporting by Ramkumar Iyer; Editing by Don Sebastian, Ted Kerr and Siddharth Cavale)
