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    • Fri Mar 21st 15:58 PM | Rating: 0 0
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      Borders Explores Strategic Options; Receives Special Funding
      Torched would mean that shareholder value went up in flames. It did not. It simply got transferred from other investors to Pershing. Stock closed 2 bucks lower on Thursday which is about $115mm value - this is probably how much Ackman's options were worth at grant.
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    • Fri Mar 21st 15:09 PM | Rating: 0 0
      Commented on:
      Borders Explores Strategic Options; Receives Special Funding
      Ackman (that's Bill not Dan) raped the company. He owns 10.6mm shares which he bought for a total price of about $180mm and in January he also got into a total return swap on 1.8mm shares at $9.72 which expires in Aug-09. If the stock traded at $11 the value of his position would be about $120mm (10.6mm shares x 11 + 1.8mm TRS x $1.18). So his fund would lose $60m mm on this investment, down some 33%. With the warrants, Borders essentially makes him whole, at $11 stock price the 14.7mm warrants struck at $7 are worth around $60mm so Pershing breaks even.

      If things turn for the worse from here the company will have no access to liquidity and will have to exercise the put to Ackman on the international operations for $125mm. But thes are worth anywhere between $180mm and $240mm (6x-8x multiple on the $30mm EBITDA from these ops that management disclosed on the earnings call). So if the stock stays at $5, the $7 strike calls will expire worthless but Pershing will make $55-$115mm on the put option.

      So it's a heads Pershing wings, tails Borders loses situation. I cannot imagine Dreman and Citadel being too happy about this. And by the way, while you are right that they have significant investments in Borders, if you look at the history of their holdings they got in '06 early '07 with the stock in the low 20s high teens and have actually been reducing their positions in Q4 '07 with the stock in the low teens. When they got into this stock a consumer recession was not in the stars but once the outlook soured they started cutting losses. My bet is that end of Q1 '08 they will be out (unless they want to have a fight with Ackman in court).
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