March 28, 2024

DealBook: Borders Faces Liquidation After Takeover Bid’s Rejection

The Borders Group may be near liquidation after a committee of its unsecured creditors on Wednesday rejected a proposed takeover by the Najafi Companies, a private equity firm.

In a motion filed with the federal bankruptcy court in Manhattan, the committee said it was concerned that the agreement could allow Najafi to buy the company at a low price and then liquidate Borders later without letting creditors benefit.

The committee’s motion essentially argues that Borders may be worth more as a court-supervised liquidation than as a company sold to a bidder.

“It neither maximizes value for the benefit of unsecured creditors nor provides for the other benefits of a going concern,” the committee wrote in the court filing.

The preferable alternative, according to the committee, is to fall back upon a bid proposed by a group of liquidator firms led by the Gordon Brothers Group and Hilco. Such firms wind down failed companies and sell their property with the aim of maximizing money for creditors. They have been involved in the closings of dozens of retailers in recent years, including Circuit City and Linens ’n Things.

The rejection of Najafi, a private equity firm that owns the Book-of-the-Month Club, does not necessarily consign Borders to liquidation. The company is scheduled to begin a court-supervised auction on July 19, and Najafi and other potential bidders, like the Gores Group, can still bid.

It is unclear whether the suitors preferred by Borders will re-emerge in the sales process next week. As the new stalking-horse bidders, the liquidation firms have set the floor for the auction. If they prevail, they will wind down the 40-year-old bookseller, which has already closed 237 stores since filing for bankruptcy protection this year. Borders has about 399 stores remaining.

Najafi, led by the onetime real-estate investor Jahm Najafi, was picked as Borders’s stalking-horse bidder and white knight two weeks ago. Mr. Najafi has established himself as a buyer of consumer brands, and is also a vice chairman of and an investor in the Phoenix Suns basketball team.

“While we regret Najafi’s withdrawal as the stalking horse bidder, we remain hopeful that they or other potential bidders who are interested in operating Borders as a going concern will choose to participate in the auction process on July 19,” Mike Edwards, the  president of Borders, wrote in a memorandum. Najafi had offered $215.1 million Öm for most of Borders’s assets and to assume $220 million of liabilities.

“We regret to confirm that Direct Brand’s proposed agreement to keep Borders operating is no longer supported by the deciding parties,” a spokesman for Najafi wrote in an e-mailed statement. “However, we remain willing, ready and able to move forward should the deciding parties instead choose to work with us and our existing offer.”

Borders is scheduled to confirm the terms of the court-supervised auction at a court hearing on Thursday.


Below is the internal Borders memo to employees from Mike Edwards, Borders’ president:

As you know, we have been working towards a successful sale of the Company and I wanted to take this opportunity to update you on the latest developments.

Under the previously announced sale process, Borders had two alternate options for a Stalking Horse bidder: the Najafi proposal, or a group including Hilco and Gordon Brothers, who would purchase the store assets of the business and undertake an orderly wind-down. Late this afternoon, Najafi informed us that they have decided to withdraw as the stalking horse proposal, and therefore we will submit the Hilco and Gordon Brothers proposal to the Court for the purposes of serving as the Stalking Horse bidder at the auction next week.

While we regret Najafi’s withdrawal as the Stalking Horse bidder, we remain hopeful that they or other potential bidders who are interested in operating Borders as a going concern will choose to participate in the auction process on July 19.

In the meantime, as the process moves forward, we will continue to conduct business as usual. Our stores remain open, and Borders.com is fulfilling orders as usual. It’s important that we all stay focused recognizing that media speculation will no doubt continue.

I am tremendously proud of all of you and your commitment to Borders. Your dedication is making an important difference, and we are beginning to see a positive impact from the changes we are making. Thank you for all you are doing.


And here is the statement by Najafi:

We regret to confirm that Direct Brand’s proposed agreement to keep Borders operating is no longer supported by the deciding parties. The deciding parties’ legal team and financial advisors have elected another option which is in contrast to what we had envisioned for the future of Borders. However, we remain willing, ready and able to move forward should the deciding parties instead choose to work with us and our existing offer.

From day one, our intention had been to keep Borders intact and to provide the best long-term outcome for Borders’ loyal customers, publishers, employees and the entire book industry. We are disappointed with today’s decision. We remain steadfast in our commitment to our current publishing and home entertainment portfolio, as well as our recent acquisition of the same businesses in France, Switzerland and Belgium.


Here is the motion by Borders’ unsecured creditors committee:

Borders’ Unsecured Creditors Reject Najafi Bid

Article source: http://feeds.nytimes.com/click.phdo?i=ce9a2901044435c7bdc311f1a5e3ad2a