Microsoft takes a bath over its acquisition of Barnes and Nobles

After two years, and the prospect of a partnership to create a Nook reading application for Windows 8 devices, the two companies are splitting, leaving Microsoft with about $120 in cash and stock.

The bookseller is buying back Microsoft’s stake for $62 million and 2.7 million Barnes & Noble shares. Microsoft initially spent $300 million for its share of Barnes and Noble ’s digital reading business.

According to the Wall Street Journal, the split will give B&N the ability to pursue its options for its recently spun-off Nook Media unit, including a possible sale. Nook unit’s revenues fell by 41 percent from the previous year, as both hardware and media sales plummeted.

The idea seemed like a good one when B&N was a main contender in the cheap tablet market, and Microsoft was readying a big consumer tablet push with Windows 8.