Is New Barnes & Noble CFO Heading from Frying Pan to Fire?

At Cablevision, Mike Huseby and other executives were under the strong thumb of the company's chairman. Now, at Barnes &spamp; Noble, he merely has...
David McCannMarch 20, 2012

Michael Huseby, who resigned his seven-year CFO post at Cablevision Systems last June, has landed in another finance hot seat, at transformation-minded bookseller Barnes & Noble.

Huseby took over on March 13 from interim CFO Allen Lindstrom, who took the post when previous finance chief Joseph Lombardi unexpectedly resigned last October. Huseby was already in the job market, having been the first of six high-ranking executives to quit Cablevision in the second half of 2011 and early 2012.

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In an interview with CFO, Huseby said he was attracted to a company with clear challenges and opportunities. He noted that Barnes & Nobles is a rare retailer that continues to be quite profitable and is growing, albeit partly on the back of last year’s bankruptcy and store closings by rival Borders. “But the company is making a transition in a big way to the digital world and digital delivery of its products,” he said. “That’s exactly what I wanted to do.”

Not that he necessarily wanted to do it at a public company. During the months after his mutually agreed-upon departure from Cablevision on July 1, 2011, the completion date for the company’s spin-off of AMC Networks, Huseby said he mostly looked at private-equity opportunities. “Honestly, having been a public-company CFO several times, I told recruiters, as well as my family and friends, that I’d do it again only if I found the right partners, meaning the CEO and management team, the board, and the strategy. And Barnes & Noble had all that.”

If Barnes & Noble was the right place for Huseby, he was likely the right person for the company, which has been proactive in acquiring and divesting businesses for much of the past 20 years. The latest round of reviews on key strategies began in January, after the company reported lower-than-expected sales for its Nook line of e-reader devices and e-books. Huseby, meanwhile, had successfully spun off several Cablevision subsidiaries, and in 2002, as CFO of AT&T Broadband, he orchestrated that company’s merger with Comcast.

Huseby declined to talk about his plans for the company. But a CFO with extensive experience in such dealings may be particularly appealing to Barnes & Noble given that executing its strategy for repositioning may require some sophistication.

“It’s tricky,” says Morningstar analyst Peter Wahlstrom. “Nook is part of the Barnes & Noble platform, and vice versa. The company has been using the Nook to create a deeper relationship with its customers. If you spin that business out on its own without ties to B&N, value would be destroyed. Instead I think they’ll be looking to create a special-purpose vehicle supported by side-pocket investors who would get a portion of the profits.”

That direction is suggested, the analyst says, by a statement in the company’s press release announcing Huseby’s appointment that a key duty for him will be “optimizing the company’s capital structure.” Under an SPV arrangement, Barnes & Noble would be a partner of the SPV while likely lessening the bookseller’s growth-related risk by taking the Nook assets off its balance sheet.

Sales of Nook products have soared in the past two years, from $120 million in fiscal 2010 to a projected $1.5 billion in fiscal 2012, which ends April 30. That still misses the revenue target, and the cash doesn’t even fall to the bottom line, notes Wahlstrom, because research and development costs have yet to be absorbed and marketing costs for the products are high.

Any new CFO at Barnes & Noble would find some other interesting challenges. The company is the last remaining national “bricks-and-mortar” bookseller. Its in-store book sales have improved significantly since the Borders failure, but the company is far behind among book e-tailers, and remaining regional and local bookstores still provide meaningful competition.

Also, since the overall bricks-and-mortar business is mature, if not in decline, Barnes & Noble is “diverting every single dollar of free-cash flow generated from [that] business into e-commerce, which is not yet profitable for B&N,” says Wahlstrom. “We don’t see that business being cash-flow-positive and profit-producing for at least two years, which is a difficult pill to swallow.”

Still, Wahlstrom doesn’t see Barnes & Noble failing for at least the next five years. “The bears don’t give the bricks-and-mortar business enough credit or a long-enough tail,” he says. “They think that model will be gone in five years, but I don’t.”

There remains a sizable segment of the population that wants to browse for, see, and feel physical books, he argues. Amazon works well for someone who has a specific book in mind, whereas, for example, someone planning a trip to the Riviera is more likely to compare several books in a store.

Meanwhile, Huseby’s departure from Cablevision came six months before that of president and chief operating officer Tom Rutledge, which triggered a mass exodus of executives. It was also five months after Cablevision hired as an executive vice president Gregg Seibert, who had spent two decades at Merrill Lynch and worked on transactions for such media companies as Cablevision, Comcast, Liberty Media, and News Corp. Seibert became CFO upon Huseby’s departure, amid rumors that Cablevision chairman James Dolan was thinking of selling the company or taking it private. 

Rutledge is now CEO of Charter Communications. In addition to getting that opportunity, he left Cablevision, says CRT Capital Group analyst Lance Vitanza, most likely because he was tired of waiting to get the CEO spot there and frustrated with Dolan’s meddling. About the other departures Vitanza says, “Dolan has a reputation and it’s not good. Imagine you’re a senior vice president and Rutledge was the guy you looked up to and respected, and now you’ve got to deal directly with Dolan, whom many view as a clown, even though he has done some smart things for Cablevision.”

As for Huseby, Vitanza characterizes him as an “unremarkable” CFO. “That doesn’t mean he did a bad job or was any kind of problem, but he didn’t distinguish himself in any particular fashion. If it were just he that left, I don’t think anyone bats an eye.”

Cablevision declined to comment for this article.