• by Mark Walsh  @markfwal, December 28, 2012

Aiming to expand its digital distribution, publishing and education company Pearson PLC has agreed to invest $89.5 million in cash for a 5% stake in Nook Media, Barnes & Noble’s digital business arm.

Following the close of the transaction announced Friday, Barnes & Noble will own 78.2% of Nook Media. Microsoft, which closed a $300 million investment in the subsidiary in October, will hold a 16.8% share, down from 17.6% before the Pearson deal.

The U.K.-based publisher will have the option to purchase up to an additional 5% interest, subject to certain conditions. Pearson, which owns Penguin Books and the Financial Times, is the largest higher education publisher globally, and biggest in the U.S. for K-12 textbooks.

The Pearson deal values Nook Media, which also includes Barnes & Noble’s college textbook business, at $1.79 billion, up from $1.7 billion at the time of the Microsoft investment.

The companies said the new investment would improve access to digital content by pairing Pearson’s expertise in online learning with Nook Media’s focus on digital distribution and customer service.

"We formed Nook Media to be a leader in the exploding market for digital content," stated Barnes & Noble CEO William Lynch. "Pearson is a forward-thinking company similarly focused on reading and learning, with powerful assets and a terrific management team.”

Barnes & Noble also announced in a securities filing Friday that it expects holiday sales to miss expectations, and that the Nook business will fall short of a projection for its fiscal 2013. The bookseller will release its final holiday results on Jan. 3.

Barnes & Noble’s line of Nook tablets and e-readers face intense competition from Apple’s iPad and iPad mini, Amazon’s Kindle devices, Samsung’s Galaxy Tab, and Google’s Nexus tablets. New data released by the Pew Research Center suggests book reading is shifting away from dedicated e-readers toward multi-use tablets.

Despite interest in front-lit e-readers like the Nook Paperwhite, research firm IDC projects sales of e-readers will top out at 19.9 million units this year, down from 27.7 million in 2011. Still, the Pearson investment shows the publishing world sees promise in the Nook business despite its early struggles and high initial costs.

News of the Pearson deal appeared to offset disappointment over Barnes & Noble’s holiday sales forecast, with the company’s shares up about 6% in Friday afternoon trading.