Borders faces liquidation after lead bid falls through

Jul 14, 2011

It’s been a busy 24 hours for Ann Arbor-based Borders: The bankrupt bookstore chain has gone from having a potential buyer to talk of liquidation.

The auction to sell Borders is still scheduled for Tuesday, July 19th.  But the lead bidder, known as a "stalking horse," has pulled out. That bidder was Najafi, a private equity from Arizona a firm.

The New York Times reports creditors were "concerned that the agreement could allow Najafi to buy the company at a low price and then liquidate Borders later without letting creditors benefit."

Here's the statement Najafi Companies issued:

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.
 

So with Najafi out, the new stalking horse is a group led by Hilco Merchant Resources, and they want to liquidate Borders.

John Pottow is a law professor at the University of Michigan. He says if no one else shows up at the auction, Hilco will likely win...which would spell liquidation for the national chain:

"There’s all these lovely euphemisms we use in bankruptcy. So you’ll see something like, 'there will be an orderly winding down process.' But it basically means everyone’s going to get fired and the stores are going to close."

About 400 Borders stores remain open.

Pottow says there’s still a decent chance Najafi could return to the table, or another bidder could emerge.