Borders Mulls Sale, Signs Financing Deal

Borders Group(BGP) could be shutting the book on its tenure as a standalone company.

The bookseller, slammed in recent years by shifting shopping habits, said Thursday that it has hired bankers to explore a possible sale. It also signed a deal with its largest shareholder, hedge fund Pershing Square Capital Management, for $42.5 million in financing and the potential sale of its international business.

Shares tumbled $1.10, or 15.5%, to $6.

Borders hired JPMorgan and Merrill Lynch to help it explore strategic alternatives, including the potential sale of the company or certain divisions.

The move comes as Borders has been struggling in recent years to offset competition from the likes of cheaper alternatives like Wal-Mart(WMT), as well as Internet-based sellers such as Amazon(AMZN). Shares, which traded as high as $40 ten years ago, have been battered as the company records declining sales and profits.

Indeed, Borders posted more declines in its most recent quarter. The company said Thursday that its fourth-quarter earnings from continuing operations dropped to $84.7 million, or $1.44 a share, from $89.8 million, or $1.45 a share, a year earlier. Revenue fell to $1.35 billion from $1.37 billion the prior year.

The earnings topped analysts' average estimate of $1.42 a share, according to Thomson Financial, but revenue missed targets of $1.38 billion.

Borders said the slowing economic environment has exacerbated its troubles, and the tightened credit markets made finding financing difficult. The company said the deal with Pershing will make it fully funded for 2008; otherwise, it could have faced liquidity issues in coming months.

The financing commitment consists of three main components: a $42.5 million senior secured loan, a backstop purchase offer that give Borders the right through Jan. 15, 2009 to require Pershing to buy most of its international businesses for $125 million, and the issuance of 14.7 million warrants -- potentially representing 19.99% of its common stock -- at $7 per share.

Borders has the right to pursue an alternative financing arrangement until April 4.

Amid the moves, Borders' board suspended the company's quarterly dividend to preserve capital.

Borders' larger rival, Barnes & Noble(BKS), also reported deteriorating financial results Thursday as it grapples with many of the same issues. Barnes & Noble said its fourth-quarter profit fell 9% to $115 million, while sales slipped 1.7%.