Ever since Borders Group filed for Chapter 11 in February, one of the overriding concerns of the major publishers has been that the bankruptcy process not be dragged out. The houses, all out tens of millions of dollars, have been looking for a quick resolution, one they believe would give them the best chance to recoup some of their losses. They have no interest in helping to finance an extended negotiation by providing more favorable terms to a company most executives quickly realized was broken beyond repair. So the naming of Najafi Companies as the stalking horse bidder for Borders with the promise of a resolution to the matter no later than August 5 is welcome news.
Indeed, as court papers show, it was the creditors committee that pushed Borders to explore a "dual-track" strategy, which included both exploring the possible sale of the company as well as developing a plan of reorganization. Preliminary plans developed by Borders did little to change publishers' minds that Borders executives, whose ranks were thinning by the day, had a clear vision of what a viable Borders might look like. That Borders continued to bleed money in the months after filing for Chapter 11 contributed to the view that the only hope to salvage some part of Borders was through a sale.
The biggest unknown at the moment is how many stores Najafi may acquire. In the papers filed with the bankruptcy court, Borders stated that it "does not know" which leases Najafi, or another bidder, will want, although it appears Najafi will be interested in about half of the 399 outlets that are still open. July 14 is the date all bids are due, and it is unlikely that a new bidder will emerge to top Najafi's offer, which includes a $6.45 million fee if the Najafi bid is turned down. Borders noted that during the sales process it received five nonbinding indications of interest, two of which were for the majority of its assets, one of which came from Najafi. Borders said it chose Najafi because, as the parent company of Direct Brands, it "offers substantial synergies and cost savings for a business combination" that would save thousands of jobs. Borders currently has about 3,792 full-time employees and 7,244 part-time employees.
Still, it is all but certain that a considerable number of stores will close. To accommodate those closings, Borders has reached agreement with liquidators Hilco and Gordon Brothers to acquire any store locations that are not included in the sale and to close those stores in "an orderly manner." If a sale as an ongoing concern is not concluded, Borders has a deal with a joint venture consisting of Hilco, Gordon Brothers, SB Capital Group, Tiger Capital Group, and Great American Group to liquidate the company's 399 stores. It estimates that a liquidation of the entire chain would bring in $252 to $284 million. (Najafi is offering $215 million in cash plus the assumption of $220 million of debt to acquire the company.) A chainwide Going Out of Business/Store Closing sale would have to take place on or before July 22. However, if a sale to Najafi or another company is approved, going out of business sales of stores not part of the agreement would take place on or before July 29, and no later than August 5. One way or another, the question of Borders's future will be resolved well before the holiday selling season, something that will bring publishers some consolation.
