CLOSING THE BOOK

Borders sale fails, liquidation OK'd; 11,000 jobs teeter

The Borders Books and Music store in Ann Arbor is among those that would close if no buyer is found after a deal with Najafi Cos. failed.

NEW YORK -- Borders Group Inc. moved closer to going out of business as a bankruptcy judge approved a plan to liquidate the second-largest U.S. book retailer after a sale to private equity firm Najafi Cos. fell apart.

The plan, approved at a hearing Thursday in the U.S. Bankruptcy Court in Manhattan, would sell Borders to liquidators led by Hilco Merchant Resources unless another bidder offers more money to keep the company in business.

If no other bidders step forward, Borders would shut down its roughly 400 remaining stores, eliminating 11,000 jobs, according to a Borders spokesman. The company's sole Toledo-area store is in the Westfield Franklin Park mall.

The Hilco plan would bring in $250 million to $284 million in cash. Borders would keep the rights to its brand name and real estate, and sell those assets to pay creditors.

Najafi, which owns the Book-of-the-Month Club, would have paid $215 million in cash and assumed $220 million in liabilities, and made Borders part of its Direct Brands unit, a distributor of DVDs, CDs, and books.

That plan, however, fell apart Wednesday after creditors objected.

Najafi said in a statement Thursday it is "disappointed" about losing the deal and remains "willing, ready and able" to resume negotiations. It also said it never intended to liquidate Borders.

Borders filed for bankruptcy in February after struggling for years to compete with larger rival Barnes & Noble Inc. and Amazon.com Inc. as more consumers bought books through the Web. Online sales account for a tiny fraction of Borders sales.

The designation of Hilco as the so-called "stalking-horse bidder" makes liquidation more likely, but not inevitable.

Borders' creditors committee worried that the Najafi deal would have allowed that firm to liquidate Borders' bookstores, and that the company would be better off selling itself to liquidators such as Hilco.

Najafi or any other bidder still could make a better bid before Tuesday's auction as long as that bid keeps Borders in operation, Borders lawyer Andrew Glenn said. Potential buyers have until Sunday to submit bids, Mr. Glenn said.

A hybrid deal in which a buyer takes on some stores while a liquidator shutters others also remains a possible outcome, and Barnes & Noble is among multiple companies that have expressed interest in buying some stores, he said.

David Strasser, an analyst at Janney Capital Markets, said liquidating Borders could make Barnes & Noble more valuable.

That company is examining a $1 billion takeover offer made in May by John Malone's Liberty Media Corp.

"A full liquidation of Borders increases the value of the entire company," Mr. Strasser said in a note to clients Thursday. "This is perhaps an opportunity for a higher negotiated bid via Liberty or an entrance of another bidder."

A Barnes & Noble spokesman declined to comment.

Borders operated 642 stores under its own name and Waldenbooks before it filed for Chapter 11 protection. It has since closed 226 stores, primarily Borders superstores.