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Microsoft eyes tablet lift via Barnes & Noble deal

• reuters.com, By Phil Wahba and Bill Rigby
 The move comes just six months before the world's largest software maker is due to launch its new touch-enabled Windows 8 operating system, and the inclusion of a Nook app on Windows tablets should allow them to compete with Apple's iPad and Amazon's Kindle Fire. 

It also gives Microsoft a direct interest in electronic publishing just as the market for downloadable college textbooks starts to take off and the publishing industry undergoes a radical shift toward electronic distribution.

  "It's a good strategic deal," said Sid Parakh, an analyst at fund firm McAdams Wright Ragen. "It gets Microsoft in the game for e-readers, and gives them access to a market that has been growing nicely and they've basically sat out of. It also makes Windows 8 a more compelling platform from an e-readers perspective." 

Shares of Barnes & Noble soared 60 percent, while Microsoft shares, which recently hit a four-year high, were flat. Microsoft's initial investment values the new unit at $1.7 billion. Over the next five years, Microsoft has committed to invest another $305 million.

  The deal - initially worth only 0.5 percent of Microsoft's cash hoard - is financially small, but strategically important for both companies. 

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