Thursday, September 25, 2008

Whither Goes Borders?

Back on April 10, here, I summarized the actions Borders was taking to stay alive.

Included among those steps, Pershing Square Capital Management had offered a $42.5 million senior secured loan with a 9.8% interest rate. As a part of that deal, Publishers Weekly (PW) reported Pershing also "agreed to acquire Borders's Australian, New Zealand, Singapore and Paperchase subsidiaries for $125 million if Borders cannot find another buyer at a better price."

That help didn't come for free. Borders granted Pershing Square 9.55 million warrants to purchase company stock for $7 a share for up to six and a half years. If you don't understand how warrants work, go to my post of March 20 here.

However, if (1) Borders did take advantage of the backup purchase offer or if (2) a "definitive agreement relating to a change-of-control of the company is not signed by October 1, 2008," (according to Publishers Weekly) or if (3) the company terminates the strategic alternatives process, Borders must issue another 5.15 million warrants to Pershing Square.

That October 1 deadline is only five days away.

Friday's Wall Street Journal reports:
Borders had hoped to have a deal in place by the end of the month, but the market turmoil and growing uncertainty about the retail sector have all but dashed those hopes, according to one person close to the company.
Shelf Awareness says: "Pershing Square is likely to obtain the warrants, which price the company's shares at $7 each, roughly its current price."

This puts Pershing Square and its founder William Ackman in a powerful position vis-a-vis Borders.

Last year, Seeking Alpha had this to say about Ackman:
William Ackman is an aggressive activist value investor who heads Pershing Square Capital Management, a $1.6+ billion hedge fund. Ackman takes large long positions in a concentrated portfolio of companies, then often pressures management to extract value for shareholders.
In effect, Borders is standing on the edge of a chasm staring across at Ackman who may force them to take action they have not yet been ready to face.

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