By Dhanya Skariachan and Phil Wahba
NEW YORK (Reuters) - Barnes & Noble Incfailed to win the support of an influential shareholderadvisory firm in its bitter proxy fight with billionaireinvestor Ron Burkle over the future of the nation's largestbookseller but got help from another.
Institutional Shareholder Services Monday came out insupport of Burkle's bid to install himself and two otherdirectors on Barnes & Noble's board and to amend a poison pilldesigned to prevent him from taking a larger, more influentialownership stake.
But Barnes & Noble won the support of Proxy Governance Inc,which said it favored the retailer's recommendations toshareholders, giving Barnes & Noble the backing of two of thethree most influential advisory firms.
The bookseller said that Proxy Governance's analysis "clearlyconcluded that the company's nominees are best suited to representthe interests of Barnes & Noble shareholders."
Last week, Glass Lewis & Co also supported Barnes & Noble'scandidates, which include Chairman Leonard Riggio and twooutside directors.
Shareholders are scheduled to vote on the proposals atBarnes & Noble's annual meeting in New York on Sept. 28.
Burkle, whose Yucaipa Companies investment firm owns 18.8percent of Barnes & Noble, has accused Chairman Leonard Riggio,who founded the chain, of mismanaging Barnes & Noble for hisown benefit. Riggio owns 28.2 percent of the company's sharesand is its top shareholder.
In its report, ISS largely agreed with Burkle's contentionthat Barnes & Noble's board has been too closely tied toRiggio, and raised questions about several of the company'sdealings with the Riggio family.
"We believe the dissidents have demonstrated a compellingcase that change in the Barnes & Noble board is warranted," thedocument said, citing the company's "deteriorating operatingperformance, poor shareholder return and less-than-enthusiasticanalyst recommendations."
While Proxy Governance came out in favor of Riggio and twoother new outside directors on the Barnes & Noble slate, it saidit was "not necessarily endorsing the actions taken by currentmanagement."
Instead, Proxy Governance said, Barnes & Noble's twooutside nominees -- David Golden, a partner in investment firmRevolution LLC, and David Wilson, chief executive of thenonprofit organization that runs the Graduate ManagementAdmission Test -- would improve the board's independence.
Proxy Governance said independent directors were all themore important given that Barnes & Noble has put itself up forsale.
ISS and Proxy Governance's recommendations are closelyfollowed by institutional investors, which own about a third ofBarnes & Noble's shares, excluding a stake owned by AletheiaResearch & Management.
Aletheia holds 15.1 percent of the company's shares and hasraised its stake in Barnes & Noble in near lockstep with Yucaipaover time. That has led Barnes & Noble to accuse it of being incahoots to take over the company, a charge Yucaipa has denied.
Should Aletheia and Yucaipa vote in tandem, they would forma bloc of about a third of the shares, roughly the same votingpower as that held by Riggio and other insiders.
Other large institutional investors include BlackRock,Dimensional Fund Advisors, State Street and Vanguard Group.None has a stake larger than 4 percent.
Yucaipa said it was gratified that ISS agrees with itsposition. It did not immediately respond to a request forcomment about Proxy Governance's analysis.
Barnes & Noble urged shareholders Monday to rejectBurkle's efforts to gain control of the company, and said theISS analysis was "flawed."
Burkle has nominated himself and two others for election tothe board for three-year terms.
Barnes & Noble shares closed the day up 2 percent at$16.19.
For a timeline of key events in the battle between Barnes &Noble and Burkle, please see (Reporting by Dhanya Skariachan and Phil Wahba, additionalreporting by Megan Davies and Jonathan Stempel; Editing by RobertMacMillan, Gunna Dickson, Matthew Lewis and Phil Berlowitz)