CORRECTED - UPDATE 1-Borders, Pershing Square in revised financing deal
(Corrects that Borders is the No. 2 specialty book seller in second paragraph). (Recasts first sentence, adds CEO comments, details, background, stock; changes dateline, previously NEW YORK)
CHICAGO, April 7 (Reuters) - Borders Group Inc (BGP.N), which is considering selling itself, said on Monday it reached a revised financing agreement with its largest shareholder to allow for more time to implement new strategies, sending its shares up more than 12 percent.
The No. 2 specialty book seller, which has been closing underperforming stores and taking other steps to turn around its business, said the new deal with Pershing Square Capital Management is more favorable than the one it replaces. It had previously said without new financing, it might have faced liquidity issues.
"We are pleased to have reached a final financing agreement with Pershing Square that includes more advantageous terms and still provides Borders with the necessary funding to continue implementing our key initiatives," Borders Chief Executive George Jones said in a statement.
"Borders is now turning its focus to the broader strategic alternatives process," he added.
Booksellers, like many other retailers, have been pressured as rising gasoline and food prices take more of consumers' discretionary income.
Borders said earlier this month it was discussing alternative financing proposals with several parties and would delay filing its annual report.
The Ann Arbor, Michigan-based company said on March 20 -- when it announced the previous agreement with Pershing Square -- it was suspending its quarterly dividend and exploring a possible sale, sending its shares down as much as 44 percent at the time. In the past, analysts have raised the possibility of a deal with rival Barnes & Noble Inc (BKS.N).
The new agreement with Pershing Square, which is led by William Ackman, offers Borders a lower interest rate of 9.8 percent on its $42.5 million loan, down from 12.5 percent before, the company said.
It also includes an increased backstop purchase offer of $135 million for international subsidiaries -- up from $125 million previously -- and a reduction in the number and term of warrants issued to Pershing Square.
The new financing commitment includes 9.55 million warrants to purchase Borders stock at $7 apiece for Pershing Square, down from 14.7 million in the previous agreement.
Also under the new deal, Pershing Square will receive an additional 5.15 million warrants if a definitive agreement relating to a change in control of the retailer is not signed by Oct. 1 or Borders ends its strategic alternative process.
J. P. Morgan Securities Inc and Merrill Lynch & Co acted as financial advisers to Borders in the evaluation of its financing alternatives and Merrill Lynch provided a fairness opinion to the board of directors regarding the financing.
Borders shares rose as high as $6.94, and were still up 44 cents, or 7.1 percent, at $6.61 in morning trading on the New York Stock Exchange. (Reporting by Martinne Geller and Ben Klayman, editing by Maureen Bavdek)
