Microsoft saves Barnes & Noble's Nook business AP Microsoft has invested $300 million in a joint venture with Barnes & Noble.

The plan is to spin out the "Nook" e-reader business from Barnes & Noble, along with its College business.

Microsoft's $300 million investment is worth a 17% stake in the new company, which means it's valued at $1.7 billion.

Amusingly, Barnes & Noble's entire market cap was $792 million at the time of the investment.

Barnes & Noble's stock is up 80% in pre-market trading.

Barnes & Noble will own the rest of the company, and the new tablet focused company will still have a relationship with Barnes & Noble bookstores.

In January Barnes & Noble announced that it was exploring options to spin out its Nook business. At the time it appeared as though the Nook business was unprofitable. Barnes & Noble said sales of the Nook Touch were worse than expected and investment in the Nook business is dragging on earnings.

There's a lot to unpack here. Here are some of the things to think about:

Microsoft now has a stake in a company that is on a path to become a rival. The Nook Tablet, much like the Kindle Fire, is an entry level tablet. We doubt this new company is going to settle for making just Nook e-readers and entry level tablets. Eventually it will have a full blown tablet that rivals Windows 8 tablets.

Nook has forked Android for its tablet operating system. Again, this means Microsoft is investing in a rival platform, unless the new Nook company plans to ditch Android and use Windows 8 for its tablets. That seems unlikely. We assume it would take a lot of work to rebuild the code from scratch.

Microsoft and Barnes & Noble were in patent lawsuits until recently. They've settle their patent disputes and are now partners.

This is Microsoft's mode of operation lately. It is really into partnering with companies. Look at its deals with Facebook, Nokia, and now Barnes & Noble. It's much better than trying to build out an e-book business.

More to come, click here for the latest.

And watch below for a brief video explainer: