Borders Keeps Us In Suspense

Borders (BGP) recently announced that it is delaying its 10-K and made an interesting disclosure.

Here is the announcement:

Borders Group, Inc. (BGP) today announced that it is delaying the filing of its Annual Report on Form 10-K for fiscal year 2007, ended February 2, 2008. The company expects to make the filing on or before April 17 after it has completed its evaluation of financing alternatives and can include finalized transactions in its 10-K filing.

As stated in the company's most recent financial news release dated March 20, as well as in exhibit 10.1 to its current report on Form 8-K filed March 21 with the Securities and Exchange Commission, Borders Group has received a financing commitment from Pershing Square Capital Management, L.P. Under the terms of the commitment, which expires on April 4, 2008, Borders Group is allowed to explore alternatives to the Pershing Square financing that may be more advantageous to the company.

Here is the interesting part:

Borders Group has entered into discussions with several parties regarding alternative financing proposals. The company's board of directors and senior management are currently evaluating the terms of these proposals against the Pershing Square commitment, and no decision has yet been made. As this process is not complete as of today's filing deadline, Borders Group is delaying the filing in accordance with Rule 12b-25 under the Securities Exchange Act of 1934.

This is good stuff and the possibilities are endless. Is it just another financing option on better terms? Is there a buyer? Will someone just take a large chunk of the company? Is it simply an international operations sale?

The good news is that any of the options will be an improvement over what Ackman was going to do (not that what he was going to do was bad). We can be assured it will be a shareholder friendly deal since Ackman owns 25% of the shares and has Board representation.

I can't wait to hear...


Disclosure: Long BGP

Comments

[Chandler Lutz:]

Good article, but I'm just not sure that the company can make the turnaround happen. Every time I go to the borders by my house there are always people in the store, but none of them are ever in the checkout aisle. I haven't seen any numbers, but it seems like most of the money is being made at the coffee shop inside!

I also don't understand why the company wastes so much store space with the music/dvd section. I mean, who goes to borders for anything but the books??

I agree with you that it will be interesting to see what kind financing terms they arrange.

I like the stores, but I think i need to see the firm turn more customers into sales before I think about making an investment.

2008 Apr 06 10:37 PM

[Chandler Lutz:]

Good article, but I'm just not sure that the company can make the turnaround happen. Every time I go to the borders by my house there are always people in the store, but none of them are ever in the checkout aisle. I haven't seen any numbers, but it seems like most of the money is being made at the coffee shop inside!

I also don't understand why the company wastes so much store space with the music/dvd section. I mean, who goes to borders for anything but the books??

I agree with you that it will be interesting to see what kind financing terms they arrange.

I like the stores, but I think i need to see the firm turn more customers into sales before I think about making an investment.

2008 Apr 06 10:37 PM

[fxtrader07:]

Borders looks more and more like a value-trap, plain and simple. Perhaps the company could have done better and there was real value to be found but the overall financial mess has changed the game significantly. The u.s. economy is set for very tough years ahead and this exactly the kind of environment that is the most deadly one for a company like borders. i held the stock a few months ago but sold out at about $12 after the quarterly report was disappointing to me. I would not bet any money on it - i simply don't see any edge here. maybe ackman does, but to me this is a risky play. not of bk and going to zero, but of dead money for a long, long time

2008 Apr 07 03:39 AM

[BSCLossMan:]

I'm no expert, but before you get too excited about anything regarding BGP, check out recent article on FT.com

2008 Apr 07 07:17 AM

[todd su:]

chandler,

the new concept dramatically reduces space devote to DVD's. my local store is not going to go "new concept" until next year most likely but they told me DVD space is being reduce "more than 50% soon"

2008 Apr 07 10:03 AM

[todd su:]

bsc,

read that.....is it just me or is reading FT really depressing? when is the last time they said anything positive about anything?

2008 Apr 07 10:04 AM

[todd su:]

FX,

were it not for ackman's 26% stake, i might agree. the buy is his ability to force shareholder friendly actions...

2008 Apr 07 10:05 AM

[dingojoe:]

Ackman seems protected, not sure about the other stockholders. Pershing also owns 10% of B&N, and 10% of B&N is worth about $180 million while 25% of Borders is worth $90 million. Pershing has a put on the apparently most valuable asset Borders has, the AU-NZ stores and if things go awry it's a virtual guarantee that they get that asset as the 42.5 mil loan plus interest will be credited to that purchase. Ackman could lose alot on the Borders stock but still walk away with valuable pieces of Borders and a nice bounce on his B&N investment. Unless you can really figure out what Ackman is up to, and it's clearly beneficial to Borders future, stay away from Borders stock.

2008 Apr 07 11:02 AM

[todd su:]

din,

do not forget, he first bought at $24, then at $12 and now can pick up more at $7.

his losses on the stock would take years to recoup via the international operations should bgp go under.

he may be angling for a merger? who knows.

i do like having the same interest though

2008 Apr 07 12:08 PM

[User 174536:]

I'm surprised nobody has mentioned that BGP is trading below tangible book value, while BKS is trading at 2-3x book value. This seems like a no-brainer buy to me. The new concept stores are apparently doing better than expected. Due to the financing agreement today, BGP has a big incentive to sell itself by October.

The only thing I don't like is BGP buying back tons of stock a couple years ago around $20, and now issuing a bunch of warrants at $7. Talk about a waste of capital. Way to return money to the shareholders...

2008 Apr 07 04:30 PM