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1st December 2008

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Borders US hit by credit crunch

20.03.08 Alison Flood

Borders US has been hit by the failure to fully dispose of its international businesses forcing it to borrow cash from investor Pershing Square Capital Management. Full-year results put out by the US giant bookseller also revealed that it made a $125.7m loss from the sale of a majority stake in its UK and Ireland book stores. A deal to sell the Australian/New Zealand unit collapsed last week, with Pershing agreeing to buy its remaining international assets should Borders fail to find a buyer.

Borders said that it needed the cash in order to execute what it called its existing operating plan. George Jones, c.e.o., admitted that it had explored various financing options but the "current credit environment has made many of these alternatives prohibitively expensive or entirely unavailable".

The group announced this morning that it had launched a strategic review process which would investigate a range of alternatives for the US company, including a sale. Borders has retained J P Morgan Securities and Merrill Lynch as its financial advisers to assist it in the process. Borders US said possible outcomes could be a sale of the company, or of certain divisions "for the purpose of maximising shareholder value", but said that it could give "no assurances that a transaction of any kind will occur".

Pershing Square has lent $42.5m to the company for a ten-month period at a rate of 12.5%, and has said that it will purchase certain of its international businesses for $125m, should Borders fail to sell them for a higher price before 15th January 2009. These include Borders US's 17% interest in Borders UK, and Borders' Paperchase, Australia, New Zealand and Singapore subsidiaries.

"This will be a challenging year for retailers due to continued uncertainty in the economic environment," said Jones. "Looking forward to 2008 and beyond, the company determined that additional capital was required to execute our operating plan, and as a result we began to explore various financing options. The current credit environment has made many of these alternatives prohibitively expensive or entirely unavailable. We are pleased to have the confidence and backing of our largest shareholder, Pershing Square, which has agreed to provide funding that gives us adequate opportunity to implement our plans this year and pursue a range of longer term solutions through the strategic alternatives review process."

Borders Group grew sales by 4.2% to $3.8bn in 2007, but made a full-year net loss of $157.4m. The loss included a one-time $125.7m after-tax loss related to the sale of the UK and Ireland book store operations.

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