Bookseller Borders puts itself up for sale

The Baltimore Sun

DETROIT -- Borders Group Inc. put itself up for sale yesterday, after years of speculation that it would merge with the nation's largest bookseller, Barnes & Noble.

While industry analysts said Barnes & Noble would be a likely suitor for Borders, the chain also got an infusion of high-interest cash to keep its ambitious turnaround plan afloat this year.

Investors responded harshly, sending Borders stock to an all-time low of $3.97 a share yesterday on the New York Stock Exchange. It closed down $2.03, at $5.07 a share, and has lost 51 percent of its value since January. It also suspended paying dividends to shareholders.

Traditional bookstores have struggled in recent years as more people buy books online or at supercenters and warehouse stores. Yesterday, Barnes & Noble reported a 9.2 percent fall in profits for the fourth quarter. But Barnes & Noble boosted dividends and predicted a profitable first quarter for this year.

Borders, in contrast, suspended dividends, and arranged $42.5 million in financing at 12.5 percent interest from its largest shareholder, Pershing Square Capital Management LP.

Borders Chief Executive Officer George Jones told the Detroit Free Press yesterday that a loan was needed because the retail environment became increasingly brutal after the credit crunch that began in August. There are no plans for layoffs, he added.

"There was not a crisis," Jones said. "So why did we do the loan? Because we don't want to have a crisis. We're not in trouble; we're not in trouble at all."

On a conference call with analysts, Borders management said it would work with advisers to reduce costs from headquarters to stores. Borders hired J.P. Morgan Securities and Merrill Lynch & Co. to advise it on strategic alternatives such as selling the company or certain divisions.

Besides the loan, Pershing Square, which owns 24.5 percent of Borders shares and has a representative on Borders' board of directors, made an offer to purchase certain parts of the company's international businesses for $125 million.

The cash infusion became more urgent after negotiations to sell Borders' Australia and New Zealand division fell apart last week.

For the quarter that ended Feb. 2, Borders reported profit of $64.7 million, or $1.10 a share, compared with a loss of $73.6 million, or $1.22 a share, during the same quarter in 2007.

Revenue dropped 2 percent, to $1.35 billion from $1.37 billion for the quarter. Analysts expected profits of $1.42 a share on sales of $1.37 billion.

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