Bloomberg News

Gores Group Said to Seek at Least Half of Borders Stores

June 02, 2011

(Updates with quote from creditors’ lawyer in seventh paragraph.)

June 2 (Bloomberg) -- Gores Group LLC, the Los Angeles- based private-equity firm, is bidding for at least half of bankrupt Borders Group Inc.’s stores, a person familiar with the matter said. The bookstore chain has multiple parties interested in buying all or some of the company, a lawyer said.

“The sale process has become significantly more robust,” said Andrew K. Glenn, a lawyer for Borders, in Manhattan court today. He said he couldn’t discuss details of the offers. The company hopes to complete a sale in two to four weeks, he said.

The person who said Gores Group is bidding didn’t want to be identified because the talks aren’t public. Frank Stefanik, a spokesman for Gores Group, declined to comment.

“Gores is a deep value buyer even for a distressed fund; given the increasing risk of potential liquidation, they probably see an opportunity to buy a core of relatively profitable stores cheap enough to take a flyer on Borders,” said Mohsin Meghji, founder and managing director of Loughlin Meghji + Co., a management consulting firm based in New York.

Borders, based in Ann Arbor, Michigan, was founded 40 years ago as a single used bookstore. The company, the second-largest book chain after Barnes & Noble Inc., had 642 stores in February when it filed for court protection and, after closing 237 of them, has 405 still operating.

Period of Control

U.S. Bankruptcy Judge Martin Glenn in Manhattan granted Borders’s request to extend its period of control over its reorganization by four months, giving it until Oct. 14 to file a Chapter 11 plan. Borders has asked to be given until Dec. 13 to win creditor support for that plan. A committee of creditors had asked the judge to end the bankrupt bookstore’s control.

Bruce Buechler, a lawyer for a committee of creditors, said in court today that creditors would like to see a sale, but haven’t been able to get enough information about how Borders intends to exit Chapter 11.

“I don’t even know if there is a plan of reorganization, or a plan of liquidation that would be filed after a sale,” he said.

Starbucks Agreement

Separately, Judge Glenn said he will approve Borders’ request to end a licensing agreement with Starbucks Corp. unit Seattle’s Best Coffee LLC. Borders’ motion to reject the agreement will be changed to deal with some of Seattle’s Best’s objections. Seattle’s Best had cafes in 225 of Borders’ stores that have closed in bankruptcy, according to a regulatory filing from Starbucks for its quarter ended April 3.

Borders posted an operating loss of $24.3 million in March, according to court papers. Before seeking protection, Borders had posted sales declines for five straight years, from a peak of more than $4 billion in 2006.

The retailer is funding operations while in Chapter 11 with a $505 million debtor-in-possession loan, and has yet to file an outline of how it intends to reorganize. Annual sales may drop to $1.5 billion, less than half what the chain generated two years ago, according to court papers.

The book chain, which once operated more than 1,000 stores, lost business as customers switched to e-readers such as Amazon.com Inc.’s Kindle, introduced in 2007. Barnes & Noble invested in its own Nook device to attract customers.

Assets and Liabilities

Borders listed assets of $1.275 billion and liabilities totaling $1.293 billion. Borders is 31 percent owned by Pershing Square Capital Management LP and 15.4 percent by LeBow Gamma LP.

Mary Davis, a spokeswoman for Borders, didn’t immediately return calls to her office and cell phone yesterday seeking comment on the bid by Gores.

Alec Gores, who founded the private-equity firm in 1987, last year bought Alliance Entertainment with Platinum Equity LLC, the company founded by his brother, Tom. The Gores Group buys controlling interests in businesses, primarily in telecommunications and technology, according to its Web site.

The bid by Gores Group for Borders was reported earlier yesterday by the Wall Street Journal.

The case is In re Borders Group Inc., 11-10614, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

--With assistance from Cotten Timberlake in Washington, Joel Rosenblatt in San Francisco and Laura Marcinek and Jon Erlichman in New York. Editors: Michael Hytha, John Pickering

To contact the reporters on this story: Serena Saitto in New York at ssaitto@bloomberg.net; Tiffany Kary in New York at tkary@bloomberg.net

To contact the editors responsible for this story: Jennifer Sondag at jsondag@bloomberg.net; John Pickering at jpickering@bloomberg.net


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