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Obama Fund-Raiser Is Likely Pick to Lead F.C.C.

May 1, 2013 by Leave a Comment

Mr. Wheeler, who more than a decade ago led two telecommunications industry trade groups, has prompted concern in recent weeks by some consumer advocacy groups that anticipated his nomination and said they were troubled by his background investing in and lobbying for cable and wireless companies.

Many of them contended that the departing chairman, Julius Genachowski, refused to stand up to powerful telecommunications companies during his four-year tenure.

But on Tuesday, Mr. Wheeler received cautious approval from Public Knowledge, one of Mr. Genachowski’s harshest critics. Officials at Public Knowledge pointed out that when Mr. Wheeler lobbied for cable companies and the cellphone industry, they were upstarts or far less concentrated than they are today.

Gigi B. Sohn, president and chief executive of Public Knowledge, said Mr. Wheeler would be unlikely to elicit concern about the so-called revolving door between Washington and the private sector. Mr. Wheeler, she noted, is 67 and wealthy, meaning that he is unlikely to want a job in the telecommunications industry after a term as a regulator. “This is the capstone of his career,” she said. “Why take over an agency at that point in your life and guide it into irrelevancy?”

A White House official said that Mignon L. Clyburn, an F.C.C. commissioner since August 2009, would be appointed as acting chairwoman until Mr. Wheeler is confirmed and sworn in. Before joining the F.C.C., she served for 11 years on the South Carolina Public Service Commission, two of them as its chairwoman.

Mr. Wheeler is a managing director at Core Capital Partners, a Washington investment firm with $350 million under management. He has helped to oversee the firm’s investments in an array of start-ups and small- to mid-size technology companies, including GoMobo, Twisted Pair Solutions and Jacked. He also is a member of the board of EarthLink, an Internet service provider that competes aggressively with Verizon and ATT.

In columns on his Web site, www.mobilemusings.net, Mr. Wheeler has expressed strong opinions about some of the issues that he would address at the F.C.C.

He has supported the voluntary incentive auctions that the F.C.C. has been planning. The agency is seeking to reclaim airwaves from television broadcasters and sell them to wireless phone companies for use in mobile broadband services.

In 2011, Mr. Wheeler criticized the broadcast industry for not moving more aggressively to use its airwaves for mobile digital television, or the broadcast of television signals to smartphones. At the same time, he said, broadcasters have been reluctant to let go of the part of the nation’s airwaves, or spectrum, that they do not fully use. The F.C.C., backed by Congress, is preparing to auction off many of those unused airwaves, potentially for billions of dollars.

“I’ve been mystified why broadcasters have declared jihad against the voluntary spectrum auction,” Mr. Wheeler wrote.

“Getting big dollars for an asset for which you paid nothing while still being able to run your traditional business over cable,” he added, “seems a pretty good business proposition — unless you really are serious about providing new and innovative services and need all that spectrum.”

The broadcasters association said that it had begun digital broadcasting to smartphones, with programming from more than 140 local television stations now available in 51 large cities. While Mr. Wheeler has gained some support, he will have to overcome critics.

Telecommunications industry watchers who have expressed misgivings about Mr. Wheeler’s work as a lobbyist point out that he oversaw the National Cable Television Association from 1979 to 1984. That could mean that he would look kindly on companies like Comcast, one of the largest cable and broadband service providers.

Free Press, a group that often opposes telecommunications industry proposals, said the F.C.C. needs as its chairman “someone who will use this powerful position to stand up to industry giants and protect the public interest.”

“On paper, Tom Wheeler does not appear to be that person, having headed not one but two major trade associations,” the group said. “But he now has the opportunity to prove his critics wrong.”

But others said Mr. Wheeler had promoted competition. He backed passage of the Cable Communications Act of 1984, which deregulated rates and let the industry compete more effectively with broadcasters.

From 1992 to 2004, Mr. Wheeler was chief executive of the Cellular Telecommunications Internet Association, the wireless industry group now known as CTIA — The Wireless Association. Mr. Wheeler’s wife, Carol, formerly worked in government affairs for the National Association of Broadcasters.

He co-founded SmartBrief, an online news service, and he served on the F.C.C.’s Technology Advisory Council and the president’s Intelligence Advisory Board. He recently was chairman of the State Department’s communications policy committee.

In March, Senator John D. Rockefeller IV, a West Virginia Democrat, sent a letter signed by 37 senators to Mr. Obama recommending Jessica Rosenworcel, the other Democrat on the five-member commission and a former aide to Mr. Rockefeller, for the top job.

A group of Washington technology policy advisers later wrote to Mr. Obama saying that Mr. Wheeler should be the nominee. “He has consistently fought on the side of increasing competition,” the group wrote.

The Wall Street Journal Web site was the first to report that the president was expected to nominate Mr. Wheeler. Any nomination would be subject to Senate confirmation.

Article source: http://www.nytimes.com/2013/05/01/business/technology-investor-is-reported-choice-for-fcc.html?partner=rss&emc=rss

Filed Under: Media Business Tagged With: , ,

Germany to Move 674 Tons of Gold

January 16, 2013 by Leave a Comment

Except, many people learned for the first time last year, it didn’t.

More than two-thirds of Germany’s gold reserves, valued at €137 billion, or $182 billion, is abroad, stored in vaults in Paris, London and above all New York. In fact, there is considerably more German gold in Manhattan than in Frankfurt.

On Wednesday, the German central bank said it would begin gradually repatriating some of the reserves, the second-largest stock in the world, after that of the United States. The Bundesbank was responding to a public outcry last year after a clash in Parliament about whether all the gold was properly accounted for.

The goal is to house more than 50 percent of German gold in Bundesbank vaults in Frankfurt by 2020, up from a little less than a third today, the bank said. About 45 percent of the reserves are 80 feet, or 24 meters, below street level in a vault at the Federal Reserve Bank of New York.

The move will include complete withdrawal of German gold stored at the Banque de France in Paris, about 11 percent of the total. Bundesbank officials were anxious to note that the decision was not a reflection of French trustworthiness. Rather, it is because France and Germany now share the euro, so there is no need for reserves as insurance against currency crises.

“The gold in Paris is in the best of hands,” Carl-Ludwig Thiele, a member of the Bundesbank executive board, said Wednesday. “We are thankful to the Bank of France for storing it.”

Still, news of the planned transfer caused some tongue-clucking in financial circles after news leaked out Tuesday. “Central banks don’t trust each other?” William H. Gross, a founder and managing director of the investment firm Pimco, asked on Twitter.

Mr. Thiele denied there was any mistrust. “We have no doubts about the integrity of other central banks,” he said. “We’re not aware of any irregularities.”

Moving the 300 tons of gold from New York and 374 tons from Paris is likely to be a logistical and security challenge, and there were questions from some German reporters about whether the transfer made financial sense. Citing security reasons, Mr. Thiele refused to say how the transfer would be accomplished or estimate the cost. But he said the Bundesbank had plenty of experience moving around large sums of money.

The presence of so much German gold abroad is a reflection of postwar German and geopolitical history.

After the end of World War II, vanquished Germany had no gold reserves. The Nazis used most of it to finance the war, and much of what was left vanished mysteriously in the postwar chaos.

But as its economy recovered and Germany became the export powerhouse it is today, the country accepted gold as well as dollars from the central banks of its trading partners to cover the financial imbalance created by German trade surpluses.

During the Cold War, West Germany followed a policy of storing its gold as far west as possible in case of a Soviet invasion. While that worry is gone, there is still an argument for keeping some gold in major financial centers like New York and London.

Gold remains the one currency that is accepted everywhere. If there were ever a currency crisis, the gold could be quickly deployed in financial markets to help restore confidence.

German reserves peaked in 1968 at about 4,000 tons, several years before the collapse of the so-called Bretton Woods system of fixed international exchange rates, which was underpinned by gold reserves. The end of Bretton Woods in 1973 eliminated some though not all of gold’s importance as a universal currency. The total has fallen to about 3,400 tons, after Germany transferred some of its treasure to international institutions in which it participates, including the European Central Bank and the International Monetary Fund.

Mr. Thiele acknowledged that Germans could get emotional about their gold, but he insisted that the Bundesbank made its decision to repatriate the treasure independently, and not because of a public outcry last year that followed reports suggesting the gold was not properly accounted for.

In a report to Parliament, the government auditing agency, the Bundesrechnungshof, called on Bundesbank officials to conduct an inventory of the thousands of bars of German gold that are stacked in foreign vaults.

Mr. Thiele said that he and other Bundesbank officials personally visited the German gold abroad, and was satisfied that it was all there.

At a packed press conference attended by armed security guards, Bundesbank officials demonstrated how they test the bars for quality and authenticity. No two bars have exactly the same weight and purity, so each must be assessed separately.

Even after Germany completes the transfer at the end of 2020, half of its gold will remain abroad — about 37 percent in New York. The Bundesbank does not plan to move any gold out of the Bank of England, which will continue to store 13 percent of the total.

The New York Fed stores the German gold without cost on the theory that the presence of foreign gold supports the dollar’s status as the global reserve currency. A spokesman for the New York Fed declined to comment.

The Bank of England, by contrast, charges about €550,000 a year for storage, Bundesbank officials said.

Despite the public criticism, the Bundesbank has not let go of its gold easily. It has continually rejected periodic attempts by political leaders to convert the reserves to cash, and has not sold any gold on world markets.

The central bank has, however, sold some of its holding to the public — in the form of commemorative deutsche marks.

Article source: http://www.nytimes.com/2013/01/17/business/global/german-central-bank-to-repatriate-gold-reserves.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

In a Romney Believer, Private Equity’s Risks and Rewards

January 22, 2012 by Leave a Comment

Beyond the windswept dunes in Bridgehampton, at a $400,000-a-month oceanfront mansion, bright young things bubbled up and the Champagne flowed fast. Into the small hours, professional dancers in exotic clothing gyrated atop platforms. One couple twirled flaming torches. The sounds of techno boomed over the beach.

The New York Post summed up the evening’s Dionysian mysteries with the following headline: “Nude Frolic in Tycoon’s Pool.”

The Post’s tycoon, and the party’s host, was a financier named Marc J. Leder, and those weekend revels last July had the East End of Long Island buzzing. Like many deal makers, though, Mr. Leder, 50, is virtually unknown outside financial circles. But from his headquarters in Boca Raton, Fla., he presides over a multibillion-dollar private empire. He is a practitioner of a Wall Street art that helped define an age of hyperwealth, and which has now been dragged into the white-hot spotlight of presidential politics: private equity.

It was through private equity that one Republican candidate, Mitt Romney, amassed his wealth — and, it turns out, it was through private equity that Mr. Romney first met Mr. Leder. A couple of months after the blowout in Bridgehampton, Mr. Leder was host for a fund-raiser at his Boca Raton home for Mr. Romney’s campaign. But the connection goes back even further. Years ago, a visit to Mr. Romney’s investment firm inspired Mr. Leder to get into private equity in the first place. Mr. Romney was an early investor in some of the deals done by Mr. Leder’s investment company, Sun Capital, which today oversees about $8 billion in equity.

Mr. Romney’s own time in the private equity business, at Bain Capital, has provoked fierce attacks from Republican rivals and others. It has also prompted a lot of questions, including the big one: What good is this business, anyway? Detractors say private equity has enriched a handful of financiers at the expense of ordinary Americans. The deal makers, this line goes, buy companies and then bleed the life out of them. Jobs are often among the casualties.

Whether there’s truth to such claims depends on whom you ask. Private equity executives, as well as Mr. Romney, who left Bain in 1999, say the industry fixes troubled companies and ultimately creates jobs. Whatever the case, three decades after this sort of deal-making burst onto the scene in the merger mania of the 1980s, there are surprisingly few solid answers from either side.

What is certain is that buyout specialists upended the old order and made vast fortunes for themselves. Fueled by easy money from banks, and from endowments and pension funds, these private investors were able to buy companies with borrowed money and put down relatively little of their own cash.

Today, many of these private kingdoms rival the nation’s mightiest public companies. In all, the private equity industry oversees $3 trillion in global assets, according to Preqin, the research firm. Buyout kings control more than 14,000 American companies, including brands like Hilton Hotels and Burger King.

BUT financiers weren’t the only ones to embrace private equity. On the campaign trail, Rick Perry called private equity artists “vulture capitalists.” But as governor of Texas, he blessed the largest corporate buyout in history — the $44.4 billion takeover of the utility TXU by several investment firms in 2007. Indeed, as in many other places nationwide, public pension funds in Texas used public money to bet on private equity, in hopes of generating the investment returns they needed to pay retirees.

Against this backdrop, the story of Marc Leder might seem a footnote in the nation’s economic ledger. But it is a story worth knowing. That’s because, in many ways, Mr. Leder personifies the debates now swirling around this lucrative corner of finance.

To his critics, he represents everything that’s wrong with this setup. In recent years, a large number of the companies that Sun Capital has acquired have run into serious trouble, eliminated jobs or both. Since 2008, some 25 of its companies — roughly one of every five it owns — have filed for bankruptcy.

Among the losers was Friendly’s, the restaurant chain known for its Jim Dandy sundaes and Fribble shakes. (Sun Capital was accused by a federal agency of pushing Friendly’s into bankruptcy last year to avoid paying pensions to the chain’s employees; Sun disputes that contention.) Another company that sank into bankruptcy was Real Mex, owner of the Chevy’s restaurant chain. In that case, Mr. Leder lost money for his investors not once, but twice.

Yet Mr. Leder doesn’t seem to be suffering too much himself. In fact, he is living so large that he can’t avoid the limelight. Last July, he used part of his personal fortune to join a group of investors in buying the Philadelphia 76ers. In December, he was spotted on St. Bart’s with Russell Simmons, of Def Jam and Phat Farm fame, and Rachel Zoe, the celebrity stylist. That again landed him in The New York Post, which dubbed him a “private equity party boy.”

Mr. Leder says that characterization couldn’t be further from the truth. He focuses on what are known as “scratch and dent” deals, which typically involve companies that are struggling to begin with. One-third of the companies Sun Capital has bought are losing money. It’s a tricky game in good times, and downright dangerous in bad ones. Mr. Leder and his defenders say Sun Capital has saved many companies and, with them, many, many jobs.

Article source: http://feeds.nytimes.com/click.phdo?i=08914cc320f8f26e4c56f2b2115d543a

Filed Under: Economy News Tagged With: , ,

DealBook: Big Bus Operator Files for Bankruptcy

January 3, 2012 by Leave a Comment

Coach America, one of the country’s biggest bus operators, filed on Tuesday for bankruptcy protection to cut its debt load.

The company, which filed in Delaware bankruptcy court, attributed its decision for file for Chapter 11 protection on the burden imposed by its large debt load. As of Nov. 30, it had about $402 million in liabilities and $274 million in assets.

While Coach America maintained in court documents that its operations were relatively solid, it has posted consecutive yearly losses. For the 11 months that ended Nov. 30, it reported $417 million in revenue but lost $27 million.

With more than 3,000 vehicles in its fleet, the company claims to be the largest tour and charter bus service operator in the country.

“Coach America has, for too long, been constrained by our capital structure, and today’s decision will ensure a stronger company focused on delivering critical transportation services to our customers across the country,” George Maney, the company’s chief executive, said in a statement.

Its largest unsecured creditors include Universal Studios and SC Fuels.

To finance its operations in bankruptcy, Coach America lined up a $30 million loan from its existing senior lenders, led by JPMorgan Chase. The company plans no interruptions in service while it reorganizes its finances.

The Chapter 11 filing is a blow to Coach America’s majority owner, the private equity firm Fenway Partners. Fenway first invested in the company in 2007, spending $60 million, according to the investment firm’s Web site.

Coach America is being advised by Rothschild, the law firm Lowenstein Sandler and the consulting firm Alvarez Marsal.

Coach America Bankruptcy Petition

Coach America Bankruptcy Affidavit

Article source: http://feeds.nytimes.com/click.phdo?i=f3c8431a287a253c54540e25ad9a039d

Filed Under: Business News Tagged With: , ,

DealBook: Buffett Investment Could Erode Confidence in Big Banks

September 1, 2011 by Leave a Comment

Warren BuffettLucas Jackson/ReutersWarren E. Buffett announced a $5 billion investment in Bank of America last week.

Last week, our financial Superman, the mild-mannered Midwesterner Warren E. Buffett, swooped in again to save another bank, the financial markets, the American economy and just maybe our precious way of life.

Mr. Buffett’s purchase of $5 billion worth of Bank of America preferred stock (on his usual generous terms, including long-lasting warrants to buy common stock at an attractive price) immediately stiffened the upper lips of chattering investors and pundits. Bank of America’s chairman hailed it as a “vote of confidence” in the bank. It was also celebrated as a signal that the worst was over in the rout recently experienced by the American financial sector.

For the moment, that all seems right: Bank of America’s stock is up 17 percent from the Aug. 25 announcement, and stocks of the other three major American banks — JPMorgan Chase, Citigroup and Wells Fargo — are also up.

But as the news is digested, it could set off the opposite effect. The Buffett investment just might turn out to erode, not increase, confidence. And not only for Bank of America, but for the banking sector as a whole.

Mr. Buffett’s investment reveals something both infuriating and scary. Bank of America has not been talking straight about its need for capital.

“You cannot have the largest bank in the country saying, ‘We don’t need the money,’ and then paying this kind of price to Warren Buffett for capital they say they don’t need, “ said Daniel Alpert, who runs the investment firm Westwood Capital.
“Industrywide, it’s a potential boomerang because we think, ‘Why should we believe any of these guys when they say they don’t need the money?’”

“We’ve been through a massive crisis in 2007 and ’08 where executives of major financial institutions tried to hide their insolvency,” he added. “They said, ‘No, no, a thousand times no, we’re fine.’ And then they were gone.”

Sure, Mr. Buffett reportedly approached Brian T. Moynihan, Bank of America’s chief executive, who initially rebuffed the investment offer — suggesting that Bank of America didn’t really need capital. Even so, Mr. Moynihan’s reticence didn’t last long. And if the bank truly didn’t need capital, why make such an expensive deal that could dilute other shareholders?

The more investors think about it, the more Mr. Buffett’s announcement will intensify, not allay, their fears about Bank of America’s capital position. Indeed, Mr. Buffett is making something more resembling a loan than an equity investment. His $5 billion doesn’t count in the important measure of capital that regulators look at, called Tier 1.

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That is perhaps why Bank of America’s money-raising has not stopped with Mr. Buffett. On Monday, the bank sold about half of its stake in China Construction Bank for more than $8 billion. And over the last year, Bank of America has been jettisoning multiple businesses to raise cash and shore up its capital.

Prudent, yes, and we can hope the bank’s management has learned a lesson about credibility. Last year, Mr. Moynihan suggested that the bank would be able to raise its dividend after it passed the Federal Reserve’s second round of stress tests. No such luck. That plan was blocked, rightly, by the Fed, whose exams revealed, among other perils, Bank of America’s overexposure to the sickly real estate sector.

Yet Mr. Moynihan and Bank of America persisted, with analysts expecting the bank to come back in the middle of the year to push the Fed to revisit the dividend issue. So much for that now.
Still, even with these moves, some investors and analysts do not think the bank’s actions will be sufficient, and that it will have to sell common shares to raise capital.

Bank of America disagrees. Yes, the stock has “an overhang” thanks to economic and legal uncertainty, but “we understand that and are working very aggressively to address that,” said Jerome F. Dubrowski, a spokesman. “We have more than enough capital to run our business” based on current rules, he said.

The bank has clearly explained to investors and regulators how it will reach compliance with the new rules ahead of schedule, he added. The Buffett opportunity was too good to pass up, Mr. Dubrowski said: “There’s only one Warren Buffett. We are very happy to have him, but it wasn’t driven by capital.”

Yet Bank of America investors had whipped themselves into a panic in August because of the giant legal liability faced by the bank. The Buffett investment does not remove that, let alone any of the bank’s other millstones.

Not only does the bank still face billions in legal settlement costs from Countrywide Financial deals, but it also has to buy back billions in faulty mortgages. Bank of America’s questionable foreclosure practices continue to drag it down, and, in addition, it faces Securities and Exchange Commission investigations into the actions of its subsidiary, Merrill Lynch, in the lead-up to the financial crisis. Bank of America acquired Merrill in 2008, under heavy pressure from the Federal Reserve and the Treasury Department.

The big problem, however, is not the unknown legal costs, but the exceedingly well-known exposure to real estate, both home mortgages and home-equity lines of credit.

The bears will return, armed with a soft economy and the declining housing market. As they do, what is to stop them from jumping from bank to bank?

Compared with Bank of America, Wells Fargo has more exposure to real estate and less capital. The bank classifies about 19 percent of its residential mortgage loans as either delinquent or nonperforming, a number similar to that of Bank of America. Wells Fargo says it’s fine, but where have we heard that before?

Of all the big American banks, JPMorgan Chase, perhaps surprisingly, has the highest proportion of bad mortgages, at about 24 percent, according to Bankregdata.com. Citigroup is lowest at less than 14 percent. But JPMorgan’s balance sheet is more solid than that of any of the country’s other megabanks.

Even if the major banks do not experience additional capital crises, the Fed plans to keep interest rates low for years. That will almost certainly depress bank lending rates, squeezing profits.

That is, if the banks lend at all. In one of the most important business lines for Bank of America and the other big banks,Big Three, residential mortgages, the banks are pricing themselves out of the market, offering uncompetitive rates. The mortgage market remains shattered.

Why aren’t the banks lending? They fear potential future litigation, for one. And they claim there is not enough demand from high-quality borrowers. But if they had conviction that the economy and housing markets were recovering, those concerns would ebb.

So if bank leaders are not exhibiting confidence, why should the rest of us?

Jesse Eisinger is a reporter for ProPublica, an independent, nonprofit newsroom that produces investigative journalism in the public interest. Email: jesse@propublica.org. Follow him on Twitter (@Eisingerj).

Article source: http://feeds.nytimes.com/click.phdo?i=a1db111cd907d96cda817b6045e84ddc

Filed Under: Business News Tagged With: , ,

DealBook: Calling Off Auction, Borders to Liquidate

July 19, 2011 by Leave a Comment

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

Filed Under: Business News Tagged With: , ,

DealBook: Investment Values Twitter at $8 Billion

July 8, 2011 by Leave a Comment

While Twitter isn’t rushing to go public like some of its larger peers, the microblogging service has no problem luring deep-pocketed investors.

Twitter is in the process of raising $400 million in a deal that values the company at $8 billion, according to two people briefed on the matter.

The financing round, which will be split into two portions, will be led by DST Global, the investment firm headed by the Russian billionaire Yuri Milner. Previous investors, including the venture capital firm Kleiner Perkins Caufield Byers, will also participate, one person said.

A Twitter spokesman declined to comment.

With more than 200 million accounts, Twitter, based in San Francisco, is part of an elite group of social Web start-ups that have flourished in recent years by rapidly attracting users. While peers like Groupon and Zynga are now hurtling toward the public markets, Twitter is holding back.

“I think they’re still trying to find a way to make it into a big business,” said Rory Maher, an analyst for Hudson Square Research.

According to his analysis, the company makes about $200 million a year from online advertising and is close to profitability. At those levels, Mr. Maher said, a valuation of $8 billion — or roughly 40 times sales — is difficult to justify.

By comparison, Zynga, the popular online gaming company, recorded $597.5 million in revenue last year, with a profit of $90.6 million, according to a recent regulatory filing. The company, which has filed to go public, is expected to offer its shares at a valuation near or above $20 billion, which amounts to around 33 times sales.

“It’s a small business,” Mr. Maher said, describing the economics of Twitter. “The ad volume isn’t there. They’re going to have to come up with products that drive more volume for them, and they need to increase the number of users.”

At present, Twitter makes the bulk of its money from an advertising platform that features “promoted tweets.” The program, which was rolled out in April 2010, displays sponsored messages in users’ feeds or keyword searches. For instance, a recent search for “Pepsi” generated a message about a current summer promotion, paid for by PepsiCo.

Founded in 2006, Twitter is also adjusting to a recent management reshuffling. Dick Costolo — a former Google executive who was Twitter’s chief operating officer — ascended to the chief executive job last October. Several months later, Jack Dorsey, who initially came up with the idea for Twitter and was its nonexecutive chairman, became head of product development.

Mr. Dorsey, who is also the chief executive of Square, a mobile payments start-up, has been working closely with Mr. Costolo to improve Twitter’s platform.

Despite its challenges, the company is attracting investor capital, at increasingly ambitious valuations.

In December, Twitter raised $200 million, from Kleiner Perkins Caufield Byers, Spark Capital, Benchmark Capital and Union Square Ventures. The investment back then valued the company at $3.7 billion.

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