The fate of Borders Group appears to be sealed. The final bidder is a group composed of liquidators Gordon Brothers Group and Hilco. The stalking horse bid of Najafi Companies fell apart when vendors balked at the resumption of normal terms (imposing an enormous liquidity need to manage the company as a going concern) and other lesser indications of interest from various parties came to nothing.With 399 remaining stores and 11,000 employees, the economic and human costs Border’s failure are significant. But this is also a moment to take heart: value maximization has won out, and despite the sinking feeling that I am sure many parties to this liquidation may experience as they dismantle what was once a category-killer, the fact that creditors focused on the numbers in black and white and made the decision that maximized value is a net positive for the U.S. business community and U.S. society at large.
As a turnaround and restructuring professional I have been on the ground at many companies that have been in deep distress. Lenders furious, trade creditors threatening to stop shipments, talent fleeing for the lifeboats, gallows humour among the executive staff distress. Skilled turnaround professionals can and have done wonders in these situations. I have seen (and played a part in) my share of corporate turnarounds, with companies that were seemingly dead revitalized after the trial by fire of deep distress.
But I have also seen the opposite, the value destroyer that is a failure to acknowledge that a company is dead. With stories buzzing about the latest astronomical social media company valuation or the newest M&A coup, we sometimes forget that companies can, and do, die. It is not always obvious that a company is dead; revenue continues to flow, meetings continue to be held, but slowly the underlying economics turn, the capital structure becomes untenable, and finally a catalyst (in this case, yet another weak holiday season) reveals that the situation is no longer redeemable.
Yes, the liquidation call (see article, pg 3) is a difficult one to make. But for a company that is dead it is the least bad option.
David Johnson is a partner with ACM Partners, a boutique financial advisory firm providing due diligence, performance improvement, restructuring and turnaround services to companies and municipalities. He can be reached at 312-505-7238 or at [email protected].
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