Borders may be Bankrupt

[stcamp]

Borders,

Yes, I know how some people feel it is the Walmart of bookland. Never the less I will it if they do disapear.

Source: http://www.bloomberg.com/apps/news?pid= ... KhKlrq.sqk

March 20 (Bloomberg) -- Borders Group Inc., the second- largest U.S. bookstore chain, put itself up for sale and halted its dividend as Chief Executive Officer George Jones said the retailer was unable to borrow money to remodel stores and pay for new technology.

The bookseller dropped the most in New York trading since it went public almost 13 years ago. Borders' largest shareholder, Pershing Square Capital Management LP, the hedge fund run by William Ackman, agreed to lend $42.5 million and to make an offer for some of its international chains. The Ann Arbor, Michigan-based company also reported fourth-quarter profit that rose less than analysts estimated.

Borders said lenders' increasing reluctance to give out credit made it almost impossible to borrow. Most of the company's financing options were ``prohibitively expensive or entirely unavailable,'' Jones said today in a statement. It will take longer than originally planned for the company to reach targets set in March, he said.

Borders, whose market share is being eroded by Amazon.com Inc. and Wal-Mart Stores Inc., has lost 76 percent of its value on the New York Stock Exchange in the past 12 months.

The retailer needed the money to satisfy vendors that it could meet its financial commitments, Jones said in an interview. Bank of America Corp. and JPMorgan Chase & Co., Borders' main banks, were either charging too much for loans or couldn't get the money to the retailer fast enough, he said.

`Giving Up'

Seeking a buyer ``does kind of sound a bit like giving up,'' said Colin Symons, the chief investment officer at Symons Capital Management Inc. in Pittsburgh.

``We have a number of people who'd be interested in either all or part of the company,'' Jones said today in a Bloomberg television interview.

Borders plunged $2.03, or 29 percent, to $5.07 at 4:01 p.m. in New York Stock Exchange composite trading, the biggest drop since the company's initial share sale in 1995.

Barnes & Noble Inc., the largest U.S. bookstore chain, will take a ``good look'' at Borders, Chief Operating Officer Mitchell Klipper said today in a conference call with investors.

Barnes & Noble jumped 8.1 percent on the New York Stock Exchange after forecasting first-quarter profit and boosting its dividend for the first time. The retailer has dropped 12 percent this year.

Amazon.com, the world's largest Internet retailer, reported in January that fourth-quarter profit more than doubled as the bookseller sold more Christmas electronics gifts, video games and toys online.

Credit Crunch

Borders said ``uncertainty in the economic environment'' and higher borrowing costs were the main reasons the retailer is putting itself up for sale. Banks are tightening their lending standards amid concern over losses from the subprime mortgage crisis, making it harder for corporations to borrow.

``The company determined that additional capital was required to execute our operating plan,'' Jones said in the statement. ``The current credit environment has made many of these alternatives prohibitively expensive or entirely unavailable.''

Without the funding from Pershing Square, which owns 18 percent of Borders' shares, ``liquidity issues may otherwise have arisen in the next few months,'' he said.

Ackman, who also holds an 11 percent stake in Barnes & Noble, may buy Borders' Paperchase unit in Australia and 17 percent of its U.K. division for $125 million, Borders said. Pershing also has warrants to buy 20 percent the bookseller's shares. A spokesman for Ackman didn't have an immediate comment.

The company hired J.P. Morgan Securities Inc. and Merrill Lynch & Co. to explore strategic alternatives. That process will include ``a wide range of alternatives including the sale of the company,'' Borders said.

Declining Profit

The bookstore chain reported profit of $64.7 million, or $1.10 a share, for the three months ended Feb. 2, compared with a loss of $73.6 million, or $1.25 a share, a year earlier. Five analysts forecast average profit of $1.41 a share in a Bloomberg survey.

Sales at domestic Borders stores open at least a year rose 2.1 percent during the fourth quarter, and revenue increased 9.3 percent on that basis in the international unit, driven by outlets in Asia Pacific.

The company had a post-tax loss of $7 million in the fourth quarter linked to the sale of its U.K. and Irish bookstore unit.

Financial targets for 2009 that were set in March 2007 ``remain attainable,'' though progress will be slower in the ``current economic environment,'' meaning the company will reach the goals later than expected, Jones said.

Borders said last March that the operating margin, or consolidated operating profit as a percentage of sales, should reach 5 to 6 percent by 2009, up from 1.8 percent then, as sales at existing stores climb by ``low to mid-single digits.''

Borders fell 33 percent in New York trading this year before today, compared with declines of 19 percent by Barnes & Noble and 24 percent by Amazon.com. Borders had debt of $554 million at the end of the year, compared with $547.8 million in 2006.

[Willow]

This morning on my drive to work the radio trivia question asked what have americans bought 26 billion less of in the last year because their lives are too busy........the answer was books...

[Ophelia]

This morning on my drive to work the radio trivia question asked what have americans bought 26 billion less of in the last year because their lives are too busy........the answer was books...

Oh dear, this doesn't sound too good.

Of course, I should be worried about the decrease of culture in the world, and how much is read by the American public, but my deep-down worry is that if things get really bad amazon might close!!

Now, to apply some rational thought, amazon makes most of its money from other things than books.

Has anybody got the figures of what percentage of amazon's profits is due to books?

[jcg]

amazon certainly won't close -- they discount most items and their response to slower sales would simply be to reduce the discount by a percent or two until sales pick back up -- most people would not notice a drop from 28% to 26% off, especially in the non-"best seller" areas.

i can understand why borders is having trouble - i imagine that their borders rewards program is bleeding them. the part where you get $5 in borders bucks after spending $150 only costs them 3% (used to cost them around 5% before they changed the way they calculated the reward about a year and a half ago). but the other part is more of a problem -- the weekly coupons that you get from them that vary from 20-30% (and 40% a few times a year). i buy (computer) books regularly - around 3-4 books a month at $40-70 each, so by only buying one a week, i always get 20-40% off (waiting, of course, to get the more expensive ones when i have a 30-40% coupon). combined with the borders bucks, (overall) i get books for less than i can get them at amazon (particularly since some of the technical books are not discounted at all at amazon). borders can't survive on that kind of margin if too many of us are doing that.

b&n has a decent program (10% off everything and an occasional high value coupon in email) that evidently isn't costing them their business. i used to be part of that program and bought from either b&n or amazon depending on how fast i needed the book. but when borders started emailing 20%+ coupons every week, i left b&n to come to borders. so the promotion worked -- it brought my b&n/amazon business over to borders, but i think it worked too good.

i think that most people who buy high cost books don't buy more than one at a time (or they could wait until the next week for the next coupon to get the other book). these are the people that borders wanted to get, but i think they miscalculated how badly the margin on those sales is hurting them.

[Ophelia]

Hello jcg,

Thank you for your infotmation about how bookstores operate.

Have joined you just to share this information with us or would you like to discuss our books?


Regards,

[jcg]

i wouldn't go so far as to say this is "how bookstores operate" -- this is just my viewpoint as someone who buys a lot and has taken advantage of most of the promotions that i saw.

i had heard rumors about borders being in trouble and found you while googling and thought i'd offer my opinion. i haven't had a chance to look around much yet.

[ABookADay]

I hope this doesn't happen, but if it does, at least maybe independent bookstores will do better

[Steingerd]

Did anyone ever see the Edward Gorey picture of a cat laying on top of a pile of books? It says, "Books, cats, life is good." They don't let you bring your cat there. And there are not enough really comfy couches for everyone to have one. And they serve mega caffeine at night, but they close before you are done with your book which would necessitate the purchase of a new book. If I could bring a big couch and a cat and stay all weekend then, maybe I'd go more often. Another problem is that their books are all new. If they had more Early American Authors, and more antique English books, I'd be into it. Maybe they could just print new books on thick, yellowing paper with charming woodcut illustrations and spray them with old book smell. Then, they would need to eliminate the cheesy novel sections and replace them all with giant varied History collections. They could replace Manga with Egyptology and cookbooks with Ancient Greek history. Then, they could rent out cats to people who don't have any. Yeah, that's what I would do if I had a Borders. David Starkey would have a candle lit shrine.