Borders explores sale, suspends dividend

By Yinka Adegoke and Karen Jacobs

NEW YORK/ATLANTA (Reuters) - Book retailer Borders Group Inc (BGP.N: Quote, Profile, Research, Stock Buzz) on Thursday suspended its quarterly dividend and said it may sell itself, sending its shares down as much as 44 percent to a new low.

No. 1 bookseller Barnes & Noble Inc (BKS.N: Quote, Profile, Research, Stock Buzz), seen as a possible acquirer of Borders, reported lower earnings but raised its dividend, and its shares rose 8 percent.

Borders said its largest shareholder, Pershing Square Capital Management, agreed to loan it $42.5 million, and will receive options to buy a 19.99 percent stake in the company at $7 a share.

Without the financing, Borders may have faced liquidity issues, it said.

"Borders effectively announced this morning that they are out of cash and took a stopgap funding" from Pershing, Credit Suisse analyst Gary Balter said in a research note.

While some analysts raised the possibility of a deal with Barnes & Noble, the company said on Thursday it had not been approached by Borders' investment bankers, but would review a possible acquisition if it were contacted.

Borders shares sank as much as 44 percent to touch their lowest price ever and ended the day down more than 28 percent. Barnes & Noble rose as much as 10 percent.

Any combination of the two U.S. booksellers would normally invite tough antitrust scrutiny. But antitrust law allows for an exception in the case of a failing company.