October 2, 2022

DealBook: Calling Off Auction, Borders Plans to Liquidate

A Borders bookstore in Washington announces it closing.Mandel Ngan/Agence France-Presse — Getty ImagesA Borders bookstore in Washington announces that it is closing.

8:31 p.m. | Updated

The Borders Group said Monday that it would liquidate, shutting down the 40-year-old bookseller after it failed to find a last-minute savior.

Though it is not a big surprise, the move will still strip the publishing industry of shelf space that is becoming increasingly scarce as brick-and-mortar stores continue to founder.

Borders said it would proceed with a proposal by the private equity firms Hilco and the Gordon Brothers Group to close down its 399 remaining stores. That liquidation plan will be presented on Thursday to the federal judge overseeing the company’s bankruptcy case.

The company will begin closing its remaining stores as soon as Friday, and the liquidation is expected to run through September. The chain has 10,700 employees.

Borders’ fate appeared sealed after a committee of its biggest unsecured creditors rejected the company’s plan to sell itself to the Najafi Companies for $215.1 million. The committee had argued that the bid by Najafi, which also owns the Book-of-the-Month Club, could have allowed the investment firm to liquidate Borders without the creditors benefiting.

Borders had set Sunday as a deadline to find alternatives to liquidation. But while it had held talks with Books-A-Million and other companies, it was unable to sign up another deal.

“Following the best efforts of all parties, we are saddened by this development,” Mike Edwards, Borders’ president, said in a statement. “The headwinds we have been facing for quite some time, including the rapidly changing book industry, e-reader revolution, and turbulent economy, have brought us to where we are now.”

The company, which began in 1971 as a used bookstore in Ann Arbor, Mich., fought to stay afloat for years amid a tough retail environment, persistent management turnover and a failure to move aggressively into digital books. In February, it filed for bankruptcy protection and closed about a third of its 650 stores.

Publishers, disheartened by the news, had watched Borders’ troubles deepen for years. After the bookseller declared bankruptcy in February, many publishers pressed for a reorganization plan, but they were left unconvinced that executives had a workable way to revamp the company.

“It saddens me tremendously because it was a wonderful chain of bookstores that sold our books very well,” said Morgan Entrekin, the president and publisher of Grove/Atlantic, an independent publisher. “It’s part of the whole change that we’re dealing with, which is very confusing.”

The news exposed a deep fear among publishers that bookstores would go the way of the record store, leaving potential customers without the chance to stumble upon a book and make an impulse purchase. Publishers have worried that without a specific place to browse for books, consumers could turn to one of the many other forms of entertainment available and leave books behind.

Independent shops have closed in droves as book sales have moved online, especially to Amazon. Barnes Noble put itself up for sale last year and has focused on expanding its digital footprint as sales of print books slowed.

Publishers said that with Borders gone, they would plan for smaller print runs and shipments. Employees at major publishing houses worried about layoffs because many companies have staff members who work only with Borders.

The closing could particularly hurt paperback sales. Borders was known as a retailer that took special care in selling paperbacks, and its promotion of certain titles could propel them to best-seller status.

When it filed for bankruptcy protection in February, Borders owed $272 million to its 30 largest unsecured creditors, including Penguin Group USA, Hachette Book Group, Simon Schuster, Random House, HarperCollins and Macmillan.

Most publishers were unwilling to restore normal trade terms to Borders after the bankruptcy filing and insisted on being paid for books in cash and in advance.

The closings will almost certainly be a boon for Borders’ competitors. Other national book chains, like Barnes Noble and Books-A-Million, could move into stores vacated by Borders. Some competing bookstores are already nearby. A spokeswoman for Barnes Noble said that 70 percent of Barnes Noble’s stores are within five miles of an existing Borders store.

Independent bookstores, historically the foes of the big chains, stand to benefit from the closings of Borders stores. That effect has already begun to be seen all over the country from the Borders stores that closed earlier this year.

At Next Chapter Bookshop in Mequon, Wis., sales rose 20 percent in June and July after a Borders several miles away went out of business, said Lanora Hurley, the owner.

“Everybody was saying those customers are going to go online,” Ms. Hurley said. “But there’s still a market for print books, and I’m happy to see that that is flowing to an independent bookstore. I’ve got lots of new customers.”

But the effect that superstores have had on independents in the last two decades was not entirely forgotten. Linda Bubon, an owner of Women and Children First, a 31-year-old bookstore in Chicago, said she had watched incredulously as Borders opened store after store in the last 10 years.

“Now we have this behemoth off our backs,” she said. “It’s not the politic answer to say that inside, there’s a little happy bookseller who’s jumping up and down.”

Below is the internal memo to Borders employees from Mr. Edwards:

Good afternoon,

I wanted to reach out to you and give you an update on Borders’ reorganization process. As you know, last week we submitted a proposal from Hilco and Gordon Brothers as the stalking horse bid, which set the minimum bid requirement for the auction.

Following continued negotiations and the best efforts from all parties, no bidders have presented a formal proposal to keep our company operating as a going concern. Therefore, under the terms of our DIP financing agreement, we intend to present to the court for approval the proposal from Hilco and Gordon Brothers, under which these two companies will purchase our stores’ assets and administer the liquidation process. We will submit this proposal at a hearing scheduled for Thursday, July 21, and we will not proceed with the auction originally scheduled for tomorrow, July 19.

All of us have been working hard towards a different outcome, and I wish I had better news to report to you today. The truth is that Borders has been facing headwinds for quite some time, including a rapidly changing book industry, eReader revolution, and turbulent economy. We put in a valiant fight, but regrettably in the end we weren’t able to overcome these external forces.

For decades, our stores have been destinations within our communities – places where people have sought knowledge, entertainment, and enlightenment and connected with others who share their passion. Whether you work in our stores, distribution centers, or at the Store Support Center in Ann Arbor, each of you has played a valuable role in helping ignite the love of reading in our customers. Together, Borders and Waldenbooks associates have helped millions of people discover new books, music, and movies, and I hope you’ll take pride in the role we’ve played in our customers’ lives.

Now we must begin switching gears and preparing for the wind-down process, which we expect to begin for stores as soon as this Friday, July 22 and conclude by the end of September. Wind-down will begin in phases in other areas, such as our Store Support Center and distribution centers, over the next week. Please know that we are committed to sharing information with you as quickly as possible. To that end, you should expect to hear from your manager by the end of this week with details regarding separation information, severance, benefits, and other resources for employees. You have my assurance that we will do whatever we can to help our employees through this transition.

In closing, I’d like to express how much I appreciate each and every one of you and all that you’ve done. The last few months have been stressful, uncertain times, but you’ve stood by Borders and have continued to impress me with your dedication, resilience, and strong drive to fight until the very end to save our company. Whether you’ve been with Borders for a few months or several years, I hope you know how much I value you and all that you’ve contributed. The coming weeks will be difficult as we wind down operations, but I hope you’ll continue to hold your head high. You’ve done me proud and, from the bottom of my heart, I thank you.

– Mike

Article source: http://feeds.nytimes.com/click.phdo?i=f055fc35522c9b05ca71c83510ad4b24

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