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Borders’ Revised Financing May Boost Acquisition Appeal

Pub Date:

MAIN NEWS HEADLINES
April 10 – April 17, 2008 Edition

Borders Revised

Financing May Boost

Acquisition Appeal

ANN ARBOR, MI/4/10/08­Borders Group, Inc. (NYSE: BGP) early this week finalized a revised financing agreement with Pershing Square Capital Management, L.P., reducing its loan interest rate from 12% to 9%.

Authorlink asked Borders Corporate Affairs Director Anne Roman how the more favorable financing would affect the potential sale of Borders to a buyer such as Barnes & Noble– recently mentioned in the media as a likely suitor.

Ms. Roman responded that "As an ongoing policy, we do not comment on the strategic alternatives process or speculate on it beyond what we issue in our public press releases. The strategic alternatives process may include a wide range of outcomes including sale of part of the company (such as our international businesses), all of the company, or many other possibilities. Of course, there’s no guarantee that a transaction of any kind will occur."

The Borders board also voted this week to give retention bonuses to the current executive team, usually done to retain key management through a sale and transition period or to keep a struggling company operating.

In a statement about the refinancing, Borders Group Chief Executive Officer George Jones said, “We are pleased to have reached a final financing agreement with Pershing Square that includes more advantageous terms and still provides Borders with the necessary funding to continue implementing our key initiatives.”

"The process of reviewing alternative financing proposals over the past two weeks was beneficial as it yielded an outcome that is better for our company and our shareholders. We are pleased to have the backing of Pershing Square, our largest shareholder, as we move forward and we appreciate their continued confidence. Borders is now turning its focus to the broader strategic alternatives process.”

The revised financing agreement consists of the same three components that were in the original Pershing Square commitment, but with specific revisions as follows:

A lower interest rate of 9.8% on the $42.5 million senior secured term loan. The original Pershing Square financing commitment carried a 12.5% interest rate. An increased backstop purchase offer (“put”) of $135 million for the international subsidiaries. The original Pershing Square financing commitment included a purchase obligation at a price of $125 million. As previously stated, Borders Group believes its international subsidiaries are worth substantially more than the amended backstop purchase offer price and the company has retained the right to continue its ongoing strategic alternatives process for these businesses. A reduction in the number of warrants issued at closing to Pershing Square to 9.55 million warrants to purchase company common stock at $7.00 per share and a reduction in the term of all warrants issued to Pershing Square from 7.5 years to 6.5 years. The original Pershing Square financing commitment included 14.7 million in up-front warrants at $7.00 per share. Under the new agreement, Borders Group is required to issue an additional 5.15 million warrants to Pershing Square if any of the following three conditions occurs: the company exercises the put related to the sale of the international subsidiaries, a definitive agreement relating to a change-of-control of the company is not signed by October 1, 2008, or the company terminates the strategic alternatives process.

The financing agreement was unanimously approved by the disinterested members of the company’s board of directors after a full review by the company and its financial and legal advisors of the Pershing Square agreement and other alternatives. It has also been approved by the lenders under the company’s revolving credit facility. The full text of the Borders Group financing agreement with Pershing Square will be filed by the company with the Securities and Exchange Commission in a Form 8-K.

J. P. Morgan Securities Inc. and Merrill Lynch & Co. acted as financial advisors to the company in the evaluation of its financing alternatives and Merrill Lynch & Co. provided a fairness opinion to the board of directors regarding the financing.

Headquartered in Ann Arbor, Mich., Borders Group, Inc. is a $3.8 billion retailer of books, music and movies with more than 1,100 stores and over 30,000 employees worldwide.