Bookseller Borders explores sale, suspends dividend
DETROIT -- Shares tumbled in volatile trading Thursday.
Borders has lost market share both to online retailers and to discounters like Wal-Mart Stores, and its possible sale was given mixed prospects by industry analysts.
The operations financing announced Thursday comes from hedge fund Pershing Square Capital Management, its largest shareholder, and includes an offer to buy Borders' international businesses.
"This will be a challenging year for retailers due to continued uncertainty in the economic environment," Borders CEO George Jones told the Associated Press. "Looking forward to 2008 and beyond, the company determined that additional capital was required."
Borders Group said it is reviewing a wide range of possibilities, including the sale of only part of the company or certain divisions.
"In the economic environment, we believe we're on the right track and our plan is the right one to get us there," Jones told analysts in a conference call. "Now we have the flexibility necessary to get us where we need to be."
Earlier, in a statement, Jones said: "liquidity issues may otherwise have arisen in the next few months" without the financing commitment.
Credit Suisse analyst Gary Balter, however, noted that the loan from Pershing Square comes at a high 12.5% interest rate. And he said the agreement could make Borders a less attractive buyout target.
"We see little opportunity in the near term for Borders to be sold, with the number one candidate Barnes & Noble not likely to pursue a deal at this price," Balter wrote in a note to investors.
Barnes & Noble said it earned $115.04 million, or $1.79 a share, in the three months ended Feb. 2, compared with $126.73 million, or $1.83 a share in the year-ago period. Analysts polled by Thomson Financial expected $1.71 A share.
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