Borders Group (BGP) may file bankruptcy as soon as next week, Bloomberg reported yesterday. If bankruptcy is imminent for the company, what is the next step for investors?
As Benzinga readers know, Borders reached a tentative agreement with General Electric (GE) last week for a new $550 million credit line, providing Borders with the financial flexibility and an appropriate level of liquidity to move forward with its strategy to reposition its business model and the Borders brand.
Notably, other Borders competitors such as Amazon (AMZN) and Barnes & Noble (BKS) remain strong, but the climate may be too turbid to consider a long buy. Stifel Nicolaus reviewed Borders and Barnes & Noble in a research report, stating that a Barnes & Noble buy may be a good tactical choice in the short term, but that it does not upgrade Barnes & Noble on account of “bankruptcy fishing” not being a sound investment thesis.
Stifel Nicolaus stated that the sector pressures on Borders may give “breathing room” to Barnes & Noble strategic and operational decisions.
Borders’ almost $800 million in losses since 2006, its loss of market share to industry competition, and its slow incorporation of digital reading are all acceptable reasons behind the company’s massive problems.
In this vein, Stifel Nicolaus noted that Barnes & Noble’s “seat at the e-book table” is likely to prove valuable for the company as negotiations regarding Borders turmoil continue, and the market opens for competitors to fill the space. Amazon, comparatively, retains a similar embrace of the digital book market.
On January 31, Borders released a press release regarding its delayed payments to vendors, stating, “Borders Group, Inc. today reported that it will delay payments to certain parties — vendors, landlords and others — scheduled for the end of January. The delay is intended to help the company maintain liquidity while it seeks to complete a refinancing or restructuring of its existing credit facilities and other obligations.”
The conditional commitment by GE Capital rests on conditions including Borders’ ability to secure $175 million from other lenders, $125 million in junior debt presented by vendors and lendors, and Borders’ ability to close stores.
Under the discussed bankruptcy negotiations, Borders will be looking to close between 150 to 200 stores. Borders currently operates more than 650 stores across the nation.
Shares of Borders were around $0.39 at the time of posting, down 17.02% from Tuesday’s market close.
— Gary Cassady
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