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Borders Files Bankruptcy After Years of Market Losses

Discussion in 'BBS Hangout' started by Rockets34Legend, Feb 16, 2011.

  1. Rockets34Legend

    Rockets34Legend Contributing Member

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    http://www.bloomberg.com/news/2011-...ruptcy-protection-with-1-29-billion-debt.html

    Borders Group Inc., the number-two U.S. bookstore chain, filed for bankruptcy in New York today after management changes, job cuts and debt restructuring failed to make up for sagging book sales in the face of competition from Amazon.com Inc. and Wal-Mart Stores Inc.

    Borders will shut about 30 percent of “underperforming” stores and restructure with $505 million in so-called debtor-in- possession financing from lenders led by GE Capital, according to a statement. The 40-year-old chain listed debt of $1.29 billion and assets of $1.28 billion as of Christmas 2010 in its Chapter 11 petition filed today in U.S. Bankruptcy Court in Manhattan. The company plans to restructure and continue to operate.

    “Borders Group does not have the capital resources it needs to be a viable competitor,” the company’s president, Mike Edwards, said today in a statement. The filing will give it “time to reorganize in order to reposition itself to be a successful business for the long term.”

    Borders, whose market value shrunk by more than $3 billion since 1998, racked up losses by failing to adapt to shifts in how consumers shop. Its first e-commerce site debuted in 2008, more than a decade after Amazon.com revolutionized publishing with online sales. The world’s largest online retailer beat it again by moving into digital books with the Kindle e-reader in 2007, a market Borders entered in July.
    ‘A Follower’

    “Instead of leading and being innovative, they were certainly a follower,” said Michael Souers, an analyst for Standard & Poor’s in New York.

    Borders, based in Ann Arbor, Michigan, began looking for a cash infusion in December after disclosing lenders cut its borrowing capacity and failure to find replacement credit could lead to a violation of its loan agreements and a “liquidity shortfall” in the first quarter of 2011.

    The company has 639 stores under the Borders, Waldenbooks, Borders Express and Borders Outlet names in the U.S. and three in Puerto Rico, according to the court filing. The company has 6,100 full-time workers and 11,400 part-time employees, it said.

    Penguin Putnam was listed as the largest unsecured creditor with a $41 million claim. Hachette Book Group has a claim of $36.9 million and Simon & Schuster Inc. has a claim of $33.8 million. Random House, the publisher owned by Bertelsmann AG, Europe’s biggest media company, has a claim of $33.5 million.
    $25 Million

    The company in May raised $25 million in a private sale to an entity controlled by Bennet S. LeBow, who was then named CEO and chairman. Pershing Square Capital Management LP is Borders’s largest shareholder, according to the filing. Borders’ biggest shareholders also include Zurich-based UBS AG, according to the court filing. It is typical in Chapter 11 bankruptcy for equity holders to receive no return.

    Borders estimated that funds would be available for distribution to unsecured creditors, according to the filing signed by the company’s chief financial officer, Scott Henry.

    Kasowitz, Benson, Torres & Friedman LLP is the law firm that filed the petition.

    Borders has struggled with cash levels since at least 2008, when it ran short of money and was forced to borrow from Pershing, its largest shareholder at the time. After missing a deadline to find a buyer, the company issued 5.15 million warrants to Pershing Square, the hedge fund run by William Ackman, making the fund the bookseller’s largest investor.

    Borders borrowed $42.5 million from Pershing to remodel stores and upgrade technology to compete with Barnes & Noble Inc., the largest bookseller in the U.S., and Amazon.com. Cost- savings measures have been implemented over the past year.
    Closing Stores

    In January 2010, Borders announced it would close some of its 513 bookstores in the U.S. and cut 11 percent of staff at its headquarters and eliminate 76 other jobs. Chief Executive Officer Ron Marshall resigned after a year on the job. Michael Edwards was put in a role as interim CEO.

    Borders delayed payments to publishers in December as part of a plan to restructure financing arrangements with vendors. The stock lost more than a fifth of its market value, its biggest drop in two years, after the announcement.

    Kmart Corp. acquired Borders in 1992, then a chain of about 20 stores founded by Tom and Louis Borders, for about $190 million and combined the retailer with its Waldenbooks unit.

    In 1995, Kmart renamed the unit Borders Group Inc. and spun it off in an initial public offering. The new public company, with a market value of about $500 million, had more than 1,000 locations under the Borders, Waldenbooks and Planet Music brands and generated $1.5 billion in revenue.

    Borders then joined Barnes & Noble in dotting the U.S. with book superstores that proved to be more profitable than its mall-based Waldenbooks locations. The superstore unit grew to 200 by 1996, doubled by 2002 and peaked at more than 560.

    “They over-expanded and built up some debt on their balance sheet,” said Souers, who has covered Borders for six years. “There was also less control to those businesses.”

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

    rockbox Around before clutchcity.com

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    I hope the store near me doesn't close. I love their coupons.
     
  3. Dave2000

    Dave2000 Contributing Member

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    wow, Waldenbooks, havent heard that name in so long, I remember San Jacinto Mall having 2 of them and wasting my elementary school years there after spending all my money at the Power Play arcade
     
  4. Icehouse

    Icehouse Contributing Member

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    So they kill mom and pops and technology kills them?
     
  5. The Real Shady

    The Real Shady Contributing Member

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    Barnes and Noble next? Book stores are going the way of music stores.
     
  6. jonjon

    jonjon Contributing Member

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    Memories... Do you remember Physical Whimsical? It was upstairs above the food court. I had to be about four or five. lol
     
  7. Jontro

    Jontro Member

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    Yeah I remember from the late 90's, my earliest recollection of Borders... the store was never really filled to even 30% whenever I visited. It was always so empty. So much that I could always find parking right in front of the store.

    I think the only time I ever saw it filled with people was when one of the Harry Potter series came out.
     
  8. BleedRocketsRed

    BleedRocketsRed Contributing Member

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    Lol thats what I loved about. Great place to study. Unlike B&N/Starbucks, it was usually very easy to find a table. Damn I hope they don't shut down.
     
  9. Major

    Major Member

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    B&N will survive a bit longer thanks to Borders going down - they'll get that traffic. But in the long run, they are likely doomed for the same reasons as Blockbuster. They just have too much physical real estate everywhere that isn't going to be sustainable in a world of ebooks.
     
  10. eric.81

    eric.81 Contributing Member

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    I really hope the one in The Woodlands @ Market Street stays open. Great selection, great sales, great location. The Barnes & Noble over there is not only jam packed every time I go in, but their selection is terrible.

    Also, when I say "jam packed" I don't mean with polite, quiet customers. It's packed with fat, suburban, rich, white high school kids that like to congregate in little groups... in the aisles... indian-style on the floor.

    The following was my reaction to this, spoken in "Swoly": :confused: :mad: :rolleyes: :(

    I got some gift cards for B&N last Christmas, and just to browse on the second floor I had to step over seemingly hundreds of listless moping teenagers and their spent frappacino cubs. I swore I'd never return.
     
  11. Oski2005

    Oski2005 Contributing Member

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  12. emjohn

    emjohn Contributing Member

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    Additionally: finite selection of books plus full retail pricing in an internet age where any title you want is available on Amazon, Biblio, Half.com, etc for less than MSRP.
     
  13. Oski2005

    Oski2005 Contributing Member

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    When Borders and B&B are gone, online retailers will realize they can make more money than ever by charging more.

    I only use online for buying stuff I can't get in store. Otherwise, I like being able to get something the same day I want it.
     
  14. DonnyMost

    DonnyMost be kind. be brave.

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    Err, whut?

    Borders and B&N don't keep online costs down.

    The internet is pretty self regulating when it comes to that stuff by the sheer amount of retailers that are competing for the same customers.
     
  15. DCkid

    DCkid Contributing Member

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    Better hurry up and use that $5 Borders Gift Card.
     
  16. rrj_gamz

    rrj_gamz Contributing Member

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    The last time I bought a bunch of books from Borders was when there were closing a store near my house...
     
  17. eric.81

    eric.81 Contributing Member

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    Exactly... competition keeps the pricing on the internet down, not brick & mortar retailers.
     

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