* Creditors say liquidation more favorable
* "Stalking horse" deal with Najafi worth $435 mln
* Hearing set for Thursday
By Nick Brown
NEW YORK, July 13 Creditors of Borders Group
Inc BGPIQ.PK are attacking a potential sale to private equity
group Najafi Cos, saying the bankrupt bookseller would be
better off selling itself to liquidators.
The plan, under which Najafi would pay $215 million in cash
and assume $220 million in liabilities, would allow the private
equity firm to liquidate Borders' brick-and-mortar operations
if it wanted, the unsecured creditors' committee said in court
papers filed Wednesday.
Borders should instead pursue its back-up plan, the
committee said -- a sale to a group of liquidators led by Hilco
Merchant Resources that would bring in between $252 million and
$284 million in cash through going-out-of-business sales.
The liquidation plan would let Borders sell its
non-merchandise assets, including intellectual property and
real estate assets, the committee said.
It added that it would support the proposed Najafi deal if
the buyer revised its bid to guarantee that Borders remains a
Borders has picked Najafi, owner of the Book-of-the-Month
Club, as the minimum, or "stalking-horse," bidder at a
bankruptcy court-supervised auction set for July 19. A hearing
on the bidding procedures is scheduled for July 14 before Judge
Martin Glenn in U.S. bankruptcy court in Manhattan.
The Najafi plan "neither maximizes value" for creditors
"nor provides for the other benefits of a going concern,"
specifically the preservation of jobs, the committee said.
The retailer, which helped pioneer the concept of book
superstores, filed for bankruptcy in February after years of
falling sales. It has closed 226 of the 642 stores it operated
prior to bankruptcy. If the Najafi sale is approved, Borders
would become a subsidiary of Najafi-owned Direct Brands, a
direct-to-consumer distributor of DVDs, CDs and books.
Borders currently employs nearly 11,000, according to a
If no party offers a competing bid by a Sunday deadline,
the auction would likely be canceled and Najafi deemed the
If a competing party were to prevail, Najafi would be
entitled to a $6.45 million breakup fee, another feature the
creditors' committee criticized in its filing. Back-up
liquidators have not demanded any breakup fee, the committee
A lawyer for the committee did not return a call seeking
comment Wednesday. Borders said it was optimistic it could
resolve the dispute.
"We continue to work hard to satisfy the matters raised by
the committee in its filing, and hope to see a successful
transaction ... that delivers value to the creditors," Borders
spokeswoman Mary Davis said.
The committee's filing comes on the heels of about 20
objections Friday and Monday from groups of landlords who said
they were being kept in the dark by the plan with respect to
the fate of their leases. Borders says it is providing as much
information as it can under tight deadlines.
The case is In re Borders Group Inc, U.S. Bankruptcy Court,
Southern District of New York, No. 11-10614.
(Editing by Steve Orlofsky)