Borders liquidation approved by bankruptcy judge
NEW YORK (Reuters) - Borders Group Inc BGPIQ.PK, won bankruptcy court approval on Thursday to liquidate its 40-year-old business, effectively spelling the end for the second-largest U.S. book retailer.
As many as 35 of the company's stores could continue to operate as bookstores in some form if a last-minute agreement with Books-A-Million Inc (BAMM.O), the nation's third-biggest bookstore chain, can be reached.
Borders attorney Andrew Glenn said in court the two sides were still talking, but no agreement had been reached. The potential deal could save as many as 1,500 of Borders' nearly 11,000 total jobs, Glenn said.
Books-A-Million said in a statement on Thursday it made an offer for 30 Borders locations. Glenn said five other stores might also be included in the discussion.
Glenn said that, under the plan being discussed, Books-A-Million would acquire the inventory and merchandise at the included stores, then negotiate with landlords on leases. But the bulk of Borders stores will close in what Glenn called a "bittersweet" operation.
"There were a lot of sad people, a lot of sadness in the corporate office," Glenn told Judge Martin Glenn, no relation, at U.S. Bankruptcy Court in Manhattan.
A group of liquidators led by Hilco Merchant Resources and Gordon Brothers Retail Partners will sell off Borders' merchandise and furniture in a process likely to start on Friday and be completed by September, according to plans set out in court papers.
No hard-and-fast deadlines exist for getting a deal done, Glenn told Reuters. He added, however, that Books-A-Million would like to hammer out a deal by Friday, in time to stop closing sales from going forward at stores that might remain open.
Glenn characterized the discussions as all-or-nothing in principal, saying that, while some wiggle room exists, the talks are generally geared toward reaching a deal for all of the contemplated stores.
Borders will keep the rights to its brand name and any leases not transferred to Books-A-Million and hold separate auction processes for those assets. Gordon Brothers unit DJM Realty will market the leases, although a timeline for that sale has not been set.
The liquidation will likely bring in between $250 million and $284 million the company can use to pay back creditors.
THE SALE DEAL THAT WASN'T
Borders, which helped pioneer the concept of book superstores, thought it had a buyer willing to keep its business alive when private-equity firm Najafi Cos, owner of the Book-of-the-Month Club, offered $215 million in cash and $220 million in assumed liabilities for the company.
But the deal fell apart amid objections from creditors, forcing the second-largest book retailer to announce plans to close its doors. Borders, founded in 1971, had hoped a "white knight" buyer would emerge, but it canceled a planned auction Monday night after receiving no bids.
Based in Birmingham, Alabama, Books-A-Million runs about 200 so-called "superstores" and another 30 smaller stores. The company's presence is concentrated most heavily in the southeast, but the Borders deal could expand its footprint: about half of the 35 stores that could be acquired are in the U.S. Northeast, including eight in Pennsylvania, three in Maryland and five in New England.
A CHANGING INDUSTRY
Borders declared bankruptcy in February, unable to overcome competition from larger rival Barnes & Noble Inc (BKS.N) and from Amazon.com Inc (AMZN.O), which began to dominate book retail when the industry shifted largely online. Borders also never rivaled its competition in e-reader sales. While Amazon was marketing the Kindle and Barnes & Noble was developing its Nook, Borders continued to focus on its in-store experience, said Michael Friedman, a bankruptcy attorney at Kibbe & Orbe LLP.
"Maybe Borders felt it could buck the trend, or that there was too much competition in the e-reader market and that its best chance was to carve out a niche as a neighborhood bookstore," Friedman told Reuters.
Even after its bankruptcy, Borders was hopeful it could find a buyer willing to continue its business. But unlike other media retailers burned by the advent of online shopping -- most notably Blockbuster Inc, which was bought out of bankruptcy by Dish Network Corp (DISH.O) -- Borders had to contend with a limited marketplace, Friedman said.
"Blockbuster was not bought for its brick-and-mortar," he said. "It was bought for its movie library, it's ties to the studios. The kind of pipeline was not as available at Borders."
The pool of strategic buyers able to benefit from Borders' assets was thin, added Van Conway, CEO of turnaround firm Conway MacKenzie Inc.
"There's not a lot of big players in the bookstore market," Conway said. "Chances are, if you're able to acquire Borders, you're already in the market and it's not a situation where the deal would mean entrance into a new market."
Speculation has begun on whether Borders' closing will provide a boost to its main competitors, namely Barnes & Noble. But Adrienne Walker, a bankruptcy lawyer at Mintz Levin Cohn Ferris Glovsky & Popeo PC, pointed out that smaller retailers might suffer.
"You think about the job loss and of course that's primary, but what people don't always think about is how this will affect smaller retailers that depend on the Borders of the world as anchors," Walker said. "What's next for them?"
The case is In re Borders Group Inc, U.S. Bankruptcy Court, Southern District of New York, No. 11-10614.