Barnes & Noble ( and Microsoft ( has formed a strategic partnership in a new Barnes & Noble subsidiary.

The new subsidiary, dubbed “Newco” for now, will bring together the digital and college businesses of Barnes & Noble. Microsoft will make a US$300 million investment in Newco at a post-money valuation of $1.7 billion in exchange for an approximately 17.6% equity stake. Barnes & Noble will own approximately 82.4% of the new subsidiary, which will have an ongoing relationship with the company’s retail stores. Barnes & Noble hasn’t decided on the name of Newco.

The company says one of the first benefits for customers will be a NOOK application for Windows 8, which will extend the reach of Barnes & Noble’s digital bookstore by providing one of the world’s largest digital catalogues of e-Books, magazines and newspapers to hundreds of millions of Windows customers in the U.S. and internationally.