Borders Halts Debt Sale Plan As Its Shareholders Squawk
Serena Ng and Scott Patterson. Wall Street Journal. (Eastern edition).
New York, N.Y.: Apr 5, 2007. pg. C.3
(c) 2007 Dow Jones & Company, Inc. Reproduced with permission ofcopyright owner. Further reproduction or distribution is prohibitedwithout permission.
Borders Group Inc. backtracked on plans to sell $250 million inconvertible bonds, less than a day after it proposed the sale, saying ithad changed its mind "based on shareholder feedback."
The Ann Arbor, Mich., book retailer said the debt sale, which was to belaunched yesterday, wouldn't proceed as planned while the company"re-evaluates this and other financing alternatives."
A Borders spokeswoman said management made the decision after consultingwith the company's board, but she declined to say what feedback it received.A person familiar with the matter said a large shareholder had raisedobjections to the debt sale because it could thwart that shareholder'sefforts to see that the company itself be sold.
Some investors are pushing for a merger with Borders' closest rival,Barnes & Noble Inc. Market expectations for such a deal were fed last yearwhen hedge fund Pershing Square Capital Management, run by activistinvestor William Ackman, took big positions in both companies. Pershingowns a 12% stake in Borders, according to an April 4 filing. Barnes & Nobleexecutives have dismissed rumors of a deal.
Another person close to the situation said Pershing, and possibly others,expressed concerns to management about the convertible financing, whichthis person said included onerous terms and would hurt existingshareholders.
There has also been speculation that private-equity firms are eyeingBorders for a buyout deal, a possibility that may not appear as attractiveif the company takes on more debt. It already has substantial sums to payoff.
At the beginning of February, Borders had short-term borrowings of $542million, provided mainly by a secured bank revolving loan. That was upfrom $207 million a year earlier. Some of the borrowing went to stockrepurchases and capital expenditures. The company had intended to useproceeds from the sale of convertible bonds to pay down some of itsborrowing.
David Dreman, whose Dreman Value Management has a 13% stake in Borders,says he wasn't the shareholder who objected to the bond sale.
Borders last month unveiled a restructuring plan after reportingdisappointing fourth-quarter and annual results. The company said itintends to sell or franchise most of its overseas stores and would expeditethe closing of nearly half the Waldenbooks outlets it owns throughout theU.S. Borders said it is committed to a turnaround effort but the plan isalso seen by some analysts as a move to unload underperforming businessesahead of a possible sale.
In New York Stock Exchange composite trading yesterday, Borders sharesended 2% higher at $20.94.
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Jeffrey A. Trachtenberg contributed to this article.