UPDATE 1-Borders posts loss, shares down
* Q3 operating loss 64 cents vs Street 50 cents
* Management no longer contemplating sale of company
* In talks with Pershing over alternative financing
* Debt reduced 34 percent
* Shares down 29 percent in volatile trade
(Adds quotes, financing, S&P action, byline)
SAN FRANCISCO, Nov 25 (Reuters) - Borders Group Inc (BGP.N), the second-largest U.S. bookseller, said on Tuesday that a quarterly operating loss dropped slightly, below Wall Street estimates, as sales fell at its domestic stores.
The company said it would no longer pursue a possible sale, and shares tumbled nearly 29 percent to $1.20 in volatile, after-hours trade.
Borders, which has been reducing its debt as it cuts costs to strengthen its balance sheet, said it was in discussions with large shareholder Pershing Square Capital Management over an alternative financing transaction.
An operating loss in the third quarter from continuing operations of $39 million, or 64 cents per share, compared with $38.4 million, or 65 cents per share, a year earlier.
Sales fell 9 percent to $693.4 million from $765.2 million a year earlier, falling at both domestic and international segments.
Analysts, on average, had been expecting a loss per share of 50 cents, according to Reuters Estimates.
The operating loss excludes fixed asset impairment and other charges totaling $133.2 million.
Borders, the No 2 specialty bookseller behind Barnes & Noble Inc (BKS.N), has seen weak demand for books in the economic downturn as consumers turn to essentials like food and gasoline and cut out other purchases not viewed as necessities.
After the company announced its results, Standard & Poor's dropped Borders from the S&P MidCap 400 index, noting that the bookseller's market capitalization was about $101 million, below the minimum market cap of $1 billion needed for admission to the index.
Last week, Barnes & Noble posted a bigger-than-expected loss and lowered its full-year outlook.
Borders put itself up for sale earlier this year, but Chief Executive George Jones told Reuters on Tuesday the company had abandoned that plan, citing the strengthening balance sheet.
"We feel like we're on sound ground for the future and we feel we have a good plan," Jones said.
Shareholder Pershing Square negotiated a $42.5 million financing deal with the company earlier this year. Borders, as previously disclosed, still has the right to exercise its option to sell its Paperchase stationery unit to Pershing for $65 million.
Debt fell by 34 percent in the quarter to $525.4 million, Borders said.
Shares fell to $1.20 in volatile trade after closing at $1.68 on the New York Stock Exchange. (Reporting by Alexandria Sage, editing by Leslie Gevirtz)
