Borders improves interest rate on cash loan
Agreement might help retail sell company
By Danny King -- Video Business, 4/7/2008
APRIL 7 | Borders Group said today it secured a lower interest rate on a loan from its largest shareholder in an agreement that might make it easer for the retailer to be sold.
Borders cut 2.7 percentage points off a $42.5 million loan from Pershing Square Capital Management, allowing Borders to save more than $1 million a year in interest payments. Borders, which trails only Barnes & Noble among U.S. bookstore chains, said last week that it would delay the release of its fiscal 2007 annual report until it evaluated all financing alternatives.
Last month, Borders hired investment bankers to explore a possible sale of the company and received a commitment for the loan from Pershing Square, which also acquired an option to buy Borders’ overseas business. Borders also said March 20 that its fiscal fourth-quarter profit lagged analyst expectations on lower gross margins from holiday discounts. The company’s shares plunged to their lowest price in more than a decade after it suspended its dividend program that day but have jumped 30% since then.
“We are pleased to have the backing of Pershing Square, our largest shareholder, as we move forward, and we appreciate their continued confidence,” Borders CEO George Jones said in a statement today. “Borders is now turning its focus to the broader strategic alternatives process.”
Pershing Square, which owned about 18% of Borders as of last month, also increased its option price for Borders’ overseas operations to $135 million from $125 million. Pershing Square partner Richard “Mick” McGuire was appointed to Borders’ board in January.
Borders is among specialty retailers that have struggled as general merchandisers such as Wal-Mart and online retailers such as Amazon.com have taken books, DVD and music market share. U.S. sales of DVDs and compact discs have stalled as the economy softened and customers downloaded more music instead of buying it in stores. Borders’ gross margins fell as it discounted books to maintain sales during the holiday season.
