Bloomberg News

Borders Says Najafi Bids $215.1 Million for Stores, Debt

July 01, 2011

(Adds Najafi’s business in first paragraph)

July 1 (Bloomberg) -- Borders Group Inc., the bankrupt bookstore chain, agreed to sell its business to Najafi Cos.’ Direct Brands LLC, a direct marketer that owns Book-of-the-Month Club.

The deal, which still requires an auction to test for higher bids, would save Borders from liquidation, the bookstore said yesterday in court papers.

Najafi, a Phoenix, AZ-based private-investment firm, bid $215.1 million for Borders stores and would assume $220 million of liabilities. The deal also needs bankruptcy court approval, to be sought at a hearing July 21, after a July 19 auction.

“We are pleased to take another important step forward as we position Borders for a vibrant future and sustainable earnings growth,” Borders Group President Mike Edwards said in a statement.

Borders has a backup bid to liquidate all its assets from liquidators including Hilco Merchant Resources and Gordon Brothers Retail Partner LLC. It pursued a “dual-track process” so it can proceed with a sale to liquidators if it isn’t acquired as a going concern, according to earlier court filings.

If Najafi’s offer succeeds, “the debtors will continue in business as a retailer and thousands of jobs will be saved,” lawyers for Borders wrote in court pleadings.

Liquidators’ Bid

The liquidators offered to pay $252 million to $284 million, or about 72 percent of the cost value of the bookstore’s merchandise in an earlier round of bidding, Holly Felder Etlin said in court papers. Etlin, a managing director of Borders’ adviser AlixPartners LLP, noted that the liquidators bid didn’t include the $220 million in liabilities that would be included in the Najafi deal.

The Najafi offer will need to be enough to repay Borders’ bankruptcy operating loan, Etlin said.

When Borders filed for bankruptcy, it borrowed $505 million from lenders led by General Electric Co.’s GE Capital unit, saying it needed the money to cover expenses while it reorganized. On June 20, Borders reached a deal with its lenders on an amendment to that loan which cost it $1 million.

The company has said it seeks to complete a sale by July 29.

Borders, the second-largest U.S. book chain after Barnes & Noble Inc., filed for bankruptcy in February, listing assets of $1.28 billion and liabilities totaling $1.29 billion. It recorded a loss of $479.9 million for the year ended Jan. 29 on sales of $1.67 billion

Out of Favor

Najafi bought Bertelsmann AG’s North American Direct Group division in 2008. Direct Brands operates such businesses such as Book-of-the-Month Club, Doubleday Book Clubs and Columbia House. Najafi makes investments “often in industries out of popular favor,” according to the statement.

Najafi bought the French Direct Group Business of CD and DVD clubs from Bertelsmann, Europe’s biggest media company, in May.

Borders’ agreement with Najafi includes $15 million to fund a windup of its Chapter 11 case, and a break-up fee for BB Brands, LLC, a subsidiary of Direct Brands LLC, if a higher offer is received.

Borders, based in Ann Arbor, Michigan, was founded 40 years ago as a single used-book store. The company, the second-largest book chain after Barnes & Noble Inc., had 642 stores in February when it filed for court protection. It closed 237, leaving 405 operating.

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

--With assistance from Edvard Pettersson in Los Angeles. Editors: Stephen Farr, John Pickering

To contact the reporter on this story: Tiffany Kary in New York at tkary@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.


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