Barnes & Noble is ending its commercial agreement with Microsoft for its Nook e-book reader ahead of its Nook spinoff release.
The news was announced as the largest U.S. traditional bookseller reported second-quarter net income, which missed expectations, according to a report by the Associated Press.
The bookseller announced plans back in June to split off its money-losing Nook e-reader division as it attempts to increase shareholder value.
Nook launched back in 2009 and enjoyed initial success but has since ending up costing Barnes & Noble hundreds of millions of dollars as it wasn't able to keep up with Amazon's Kindle and Apple's iPad.
Barnes & Noble also competes with discount stores like Wal-Mart and Target.
Microsoft purchased a 17.6 percent stake in Barnes & Noble's college bookstores and Nook business just two years ago for $300 million. The investment helped support the Nook business and Barnes & Noble provided Nook content and apps for a number of Microsoft's Windows products.
Barnes & Noble will now buy out Microsoft's stake in the business for $125 million, according to the AP report.
"As the respective business strategies of each company evolved, we mutually agreed that it made sense to terminate the agreement," said Microsoft in a written statement Thursday.
Microsoft will lose money on its investment, but it will be spared any future payments to fund Nook, which was costing the company nearly $21 million per quarter. As part of the agreement, Microsoft will have the right to receive about 22.7 percent of total proceeds of Nook's digital business, if it is sold in the next three years.
Barnes & Noble shares closed down 5.4 percent on the New York Stock Exchange on Thursday.
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