* Borders cancels auction, will liquidate
* Could not find buyer after sale deal fell apart
* Process will close 400 stores, cost 11,000 jobs
(Adds detail on liquidation process)
By Nick Brown
NEW YORK, July 18 Borders Group Inc BGPIQ.PK,
the second-largest U.S. bookstore chain, said it has canceled
an upcoming bankruptcy auction and will close its doors for
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
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
towards a different outcome, but the headwinds we have been
facing for quite some time ... have brought us to where we are
Borders was 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, 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.
Earlier Monday, Reuters reported that Books-A-Million Inc
BAMM.O, 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
"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 LINTA.O.
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
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
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
OUT OF A JOB
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.
(Editing by Bernard Orr and Steve Orlofsky)