Commentary

The Book Remains Open On Borders (And B&N)

Everybody's playing catch-up to the Wall Street Journal's Mike Spector and Jeffrey A. Trachtenberg this morning after they broke the news online last night that a Los Angeles-based private equity company, Gores Group, is negotiating to purchase about 200 of Borders Group's 405 remaining retail outlets as well as its online operation. Borders has closed 226 stores.

Borders reportedly has held talks with other potential buyers but the New York Times DealB%k's Michael J. de la Merced confirms that the Gores Group is its "current focus," according to a source who adds that "no deal is imminent." Spokespeople for Borders and Gores have not commented on the reports.

Gores is a "distressed investor" that buys stakes in ailing companies and tries to rehabilitate them, the Journal reports. It currently has stakes in radio operator Westwood One, for example, as well as Alliance Entertainment, a wholesale distributor of CDs and DVDs.

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Alec Gores, the CEO and founder of the investment group, is a billionaire who is ranked No. 782 on Forbes list of the world's richest people, according to Shira Ovide, who compiles a profile from clippings in a separate Wall Street Journalblog post. He is reportedly acting with his brother, Tom, who runs another private-equity firm, Platinum Equity. A third brother, Sam, heads up a talent agency, Paradigm, and has advised his siblings in previous entertainment bids such as a failed attempt for Miramax.

The company closed a new $2 billion fund for buying primarily tech, telecom, business services, industrial, consumer and healthcare companies earlier this year and also has stakes in networking and communications company Siemens Enterprise Communications, the women's apparel company Big Strike and Diagnostic Health Corp., Ovide reports.

Borders' and its creditors' attorneys are set to square off in a Manhattan courtroom today over the former's request to extend an exclusive period to develop its reorganization plan. The Creditors' Committee has asked U.S. Bankruptcy judge Martin Glenn to deny the request, Jim Milliot reports in Publisher's Weekly, but Borders claims that a possible sale of its assets "is now at its most sensitive stage."

The company has not "ruled out reorganizing as a standalone company and is simply asking for more time to continue negotiations with landlords and vendors to create terms to incorporate in a reorganization plan," according to Milliot's story.

The piece is followed by a handful of blistering comments. For what they're worth -- pennies on the dollar, perhaps -- some of them are purportedly by employees or ex-employees. Says one:

"' blah, blah, blah' .... after working for them in management positions I am well versed in translation: 'we are quite busy rearranging the deck chairs'... it's all an illusion guys... they've been rearranging the chairs for the past few years - trust me, when there is no more $ to line the pockets at the top the ship will be declared 'sunk' & those at the top will stare at we fools."

Says another who identifies herself as a sales manager at Borders Group: "Look if they don't have a plan by now, they are not serious about being in business. Deny the extension."

Borders wants until Oct. 14 to file a Chapter 11 plan, and until Dec. 13 to win creditor support for that plan. Borders posted an operating loss of $24.3 million in March, Serena Saitto and Tiffany Kary report in Bloomberg and has posted sales declines for five straight years, from a peak of more than $4 billion in 2006. It is operating with a $505 million debtor-in-possession loan.

The shares of Barnes & Noble, meanwhile, are rising in the wake of Liberty Media's $17-a-share bid for 70% of the company on May 19, Tara Lachapelle, Matt Townsend and Justin Doom report in Bloomberg. The offer represented a 40% premium to the 20-day trading average and is contingent on Leonard Riggio, the company's chairman, keeping his 30% stake and a management role. But Ron Burkle, the largest investor after Riggio, has boosted his stake at an 8.8% premium to the deal price, they report.

"The market believes that the intrinsic value for Barnes & Noble is much higher," Capstone's Sachin Shah tells Bloomberg's reporters. Burkle is "going to try to get the best price," he says. "Why would he acquire shares if he knew the stock was worth $17?"

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