Borders, unable to find white knight, to liquidate
NEW YORK (Reuters) - Borders Group Inc, the second-largest U.S. bookstore chain, said it has canceled an upcoming bankruptcy auction and will close its doors for good.
The company said in a statement Monday it was unable to find a buyer willing to keep it in operation and will sell itself to a group of liquidators led by Hilco Merchant Resources.
Borders' roughly 400 remaining stores will close, and nearly 11,000 jobs will be lost, according to the company.
"We are saddened by this development," Borders President Mike Edwards said in the statement. "We were all working hard toward a different outcome, but the headwinds we have been facing for quite some time ... have brought us to where we are now."
Borders was unable to overcome competition from larger rival Barnes & Noble Inc and from Amazon.com Inc, which began to dominate book retail when the industry shifted largely online. Borders, for which online sales represented only a small fraction of revenue, never caught up to its rivals' e-reader sales, namely Amazon's Kindle and Barnes & Noble's Nook.
Borders had hoped to sell itself to buyout firm Najafi Cos, which owns the Book-of-the-Month Club. While Najafi was willing to pay $215 million in cash and take on another $220 million in liabilities to acquire the assets, the deal fell apart last week after creditors objected to terms that would have allowed Najafi to liquidate after completing the sale.
"We are saddened by today's news announcing the imminent liquidation of Borders, as we had hoped for a different outcome," said Najafi in an emailed statement.
"However, last week the debtor selected the liquidators' bid over our proposed plan to keep Borders operating as a going concern, a decision that is a detriment to Borders' employees, suppliers and customers," Najafi added.
Earlier Monday, Reuters reported that Books-A-Million Inc, the nation's third-largest bookstore chain, was in talks to acquire a small number of Borders stores, citing sources close to Borders' bankruptcy. Representatives for Borders did not address the report when contacted by Reuters, and the company's statement did not say whether formal talks had taken place.
A CHANGING INDUSTRY
Founded in 1971 by Tom and Louis Borders in Ann Arbor, Michigan, Borders had just 21 stores when it was purchased in 1992 by Kmart. By 1997, its store count had ballooned to 203, and the company was setting its sights even higher with plans to expand to 1,000 locations.
But a money-losing e-commerce website and mounting competition from online retailers forced Borders to try unsuccessfully to sell itself in 2008.
The company finally declared bankruptcy in February 2011 after delaying payments to landlords and publishers. It conducted going-out-of-business sales at about 200 of the 642 stores it operated prior to bankruptcy.
While competitors responded to consumers' growing preference for online business and electronic device-based entertainment, Borders remained mainly a brick-and-mortar operation.
"They were like the dinosaur that saw the ice coming but didn't think it was going to hit them," Schuyler Carroll, a bankruptcy attorney at Perkins Coie LLP, told Reuters Monday.
The Hilco group, which also includes Gordon Brothers Retail Partners, SB Capital Group, Tiger Capital Group and Great American Group, will begin liquidations as early as Friday, with the process to conclude sometime in September, Borders said. The bookseller will seek bankruptcy court approval of the closing procedures at a hearing Thursday in U.S. bankruptcy court in Manhattan.
Andrew Glenn, an attorney for Borders, told Reuters last week the company expected a liquidation sale to bring in between $250 million and $284 million.
DJM Realty, a unit of Gordon Brothers, will be in charge of the management and disposition of the 259 Borders leases that remain available for assignment.
"It is not every day a portfolio becomes available" with real estate as desirable as Borders, DJM said in a statement Monday. The properties should draw strong interest given the lack of real estate development and barriers to entry in key markets, DJM said.
For all its innovations on the digital side, Borders' main retail competitor, Barnes & Noble, remains in its own difficult straits, Carroll said.
The company put itself up for sale in August amid years of declining print book sales, saying its shares were undervalued. It is examining a $1 billion takeover offer made in May by John Malone's Liberty Media Corp.
David Strasser, an analyst at Janney Capital Markets, said liquidating Borders could make Barnes & Noble more valuable.
"This is perhaps an opportunity for a higher negotiated bid via Liberty or an entrance of another bidder," Strasser said last week in a note to clients.
But Carroll isn't so sure.
"Barnes & Noble is having its own problems," Carroll said. "I don't think one less store down the street is going to solve them."
Barnes & Noble was thought to be interested in buying a handful of Borders stores after Glenn said at a hearing last week that the company had voiced some interest in select Borders locations.
Barnes & Noble CEO William Lynch said in February that certain Borders stores appeared attractive to the company, which operates more than 700 stores.
Borders' statement did not address whether Barnes & Noble had made an offer, and a Barnes & Noble spokeswoman declined to comment.
Edwards extended a "heartfelt thanks" to his employees in Monday's statement, saying he was "proud" of the role they've played in the lives of consumers.
Carroll said the most significant loss associated with Borders' closing is that of jobs.
"It's one more knife in an economy that really doesn't need that," he said. "And for people who may be living on the edge right now and may not be able to quickly find a new job, they may not do very well."
The case is In re Borders Group Inc, U.S. Bankruptcy Court, Southern District of New York, No. 11-10614.
(Additional reporting by Phil Wahba in New York)
(Editing by Bernard Orr and Steve Orlofsky)