(Reuters) - Shares in Barnes & Noble Inc soared 22 percent on Thursday after a report that Microsoft Corp is considering an offer to acquire the tablet and e-book business of B&N's Nook Media unit.

The technology website TechCrunch reported that Microsoft, which already owns a 17 percent stake in Nook Media, was proposing a $1 billion offer to buy all of Nook's digital assets.

The report also suggested that Nook would stop selling Android-based tablets entirely by the end of fiscal 2014 in favor of distributing content via other publishers' platforms.

A source familiar with the documents cited by TechCrunch confirmed their authenticity. The source said the documents dated from March, suggesting that any deal - if one is even pending - was not imminent.

It was not clear from the TechCrunch story whether Microsoft had formally made an offer to B&N or whether B&N had replied.

B&N and Microsoft declined to comment.

Microsoft acquired its stake in the Nook Media unit a little more than a year ago in a deal that valued the entire unit at $1.7 billion. In December the British publisher Pearson Plc bought a stake in the unit at a $1.8 billion valuation.

But Nook Media sales have disappointed since. Revenue dropped 26 percent in the most recent holiday quarter as Nook sold fewer digital readers and tablets and had to cut prices. Just this week B&N slashed the price of its best tablet by one-third as a special promotion for Mother's Day.

It was not immediately clear why Microsoft would want to buy Nook's digital assets, unless it wished to make a preemptive strike against Google and shift Nook away from the Android platform. There is already a Nook app for Windows 8 devices.

Microsoft's recent acquisitions - such as online chat service Skype and business networking site Yammer - have not been content-focused.

Barclays analyst Alan Rifkin, in a note to clients on Thursday, said a lower valuation for the Nook Media unit was appropriate and that $1 billion was even higher than he had modeled.

B&N shares rose 22 percent to $21.70 in afternoon trading. The stock last traded at those levels a year ago, around the time of the Microsoft investment.

The stock is heavily shorted, with almost 36 percent of its float sold short as of April 15. Short sellers borrow stocks and sell them, betting the price will fall. Where short interest is high, that can exacerbate a rally, as people rush in to cover their positions.

Credit Suisse, in a note to clients, said the suggested terms of the Microsoft offer implied that Barnes & Noble was worth about $27 per share.

COLLEGE BOOKSTORE CHAIN

Nook Media also includes a college bookstore chain, but the TechCrunch report suggested the Microsoft offer would include only the e-book, digital reader and tablet assets.

If Microsoft carves the college bookstore chain out of the Nook Media unit, and B&N takes back those stores, Credit Suisse said the valuation of B&N could rise even higher.

While the college bookstore chain has provided B&N with much needed cash, sales have been weak. In the first three quarters of the fiscal year, sales fell 0.3 percent, while operating profit fell 7 percent to $115.8 million.

The college textbook business is undergoing a transformation with the shift to digital, as publishers move away from large, heavy books that last for years to multiple packages with smaller bites of content.

Companies like News Corp and Apple have started to make plays on the digital textbook market as that shift accelerates.

COULD SPEED OTHER SALES

Earlier this year, B&N Chairman Leonard Riggio said he wanted to buy the company's chain of nearly 700 namesake bookstores. Selling off Nook could simplify that process, especially if it reunited Riggio with the college bookstore business, which he sold to B&N in 2009.

B&N first indicated it might spin off the Nook business in early 2012. The retailer has spent hundreds of millions of dollars on the unprofitable unit, trying to make its devices competitive against devices from Amazon, Apple and Google, among others.

The latest IDC market share data for tablets, released earlier this month, leaves B&N out of the industry's top five vendors, suggesting its share of the global market is negligible. Microsoft's new Surface tablets - the first of which hit the market last October - have only a 1.8 percent share.

B&N has typically launched a new edition of the Nook every year. But this year it simply updated its high-definition tablets by adding Google's app store, which a number of analysts saw as an easy way for the company to launch a "new" Nook.

One uncertainty in any Microsoft bid is how Liberty Media would respond. It holds preferred shares in B&N that, if converted, would represent 17 percent of the company. Liberty was not immediately available to comment.

One analyst following Barnes & Noble said a Microsoft deal, if it happens, would be dramatic but not necessarily surprising.

"We must be careful here because details are lacking, but with devices phasing out, we see sale of the digital assets as an effective sale of the entire Nook business, unless co-ownership or leasing of digital content is arranged," Stifel analyst David Schick said in a research note.

(Reporting by Phil Wahba and Ben Berkowitz; Additional reporting by Liana B. Baker and Bill Rigby; Editing by Alden Bentley, Theodore d'Afflisio and John Wallace)

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