Borders Mulls a Sale

Books and music merchant Borders Group may be next on the selling block. The Ann Arbor, MI-based company said on March 20 it was consider a sale.

Borders officials said in a release they retained J.P. Morgan Securities and Merrill Lynch & Co. to assist the company as it explores strategic alternatives, which will include a possible sale of the company and/or certain divisions “for the purpose of maximizing shareholder value. The company can give no assurances that a transaction of any kind will occur.”

The announcement came on the heels of the company’s release of its financial results for the fourth quarter and fiscal year ended Feb. 2. Borders Group, which has 1,100 stores worldwide, posted a loss of $157.4 million for the year on top of a $151.3 million loss the previous fiscal year. Its revenue rose to $3.82 billion, from $3.72 billion.

Company officials also announced financial backing of $42.5 million from Pershing Square Capital Management, their largest investor. The Pershing Square financing commitment is binding on Pershing Square until April 4, and allows Borders Group to pursue alternative financing arrangements on more advantageous terms (subject to Pershing Square’s right to match those terms).

If Borders finds a more favorable alternative before April 4, it can terminate the Pershing Square financing commitment with no break-up fee. Pershing Square also will be entitled to receive reimbursement of its reasonable expenses.

Borders Group comprises four business segments: Borders Domestic Superstores, Waldenbooks Specialty Retail, Borders International, and Borders Superstores outside the U.S. Currently, there are 512 superstores in the United States, as well as 305 Waldenbooks stores, 141 Borders Express stores, 25 Borders airport stores and 14 outlet locations.

Overseas, the company runs 22 stores in Australia; five in New Zealand; two in Singapore; three in Puerto Rico and 120 Paperchase stores. It has four superstores in Malaysia operated as a franchise, and four in the United Arab Emirates also run by a franchise operator. The company announced on March 12 that a potential sale of the Australian and New Zealand businesses to A&R Whitcoulls had fallen through.

During a session at National Retail Federation’s annual conference in January, Borders vice president of e-business Kevin Ertell said the bookseller planned to launch its own e-commerce site in its first quarter of 2008. The site at bordersbooks.com was still in beta testing, but its current agreement to sell through Amazon.com will be coming to an end, Ertell said.

Joyce Greenberg, a managing director for New York-based investment firm Financo, says she’s not surprised by the news of a possible company sale after plans to sell the Australia and New Zealand businesses didn’t pan out. “On operations he can control, [Borders Group CEO] George Jones has done pretty well. But the music business has been dragging them down. I think he needs the capital and focus on opportunities domestically.”

But, Greenberg adds, “He’s got a backup of capital. With this world of uncertainty, that’s a pretty good option.”

Indeed, says Chris Shannon, managing director for New York-based investment bank Berkery, Noyes & Co., “Borders is trying to be pro-active in dealing with a difficult retail climate by working closely with their largest investor.”