Borders Nearing Bankruptcy

What has seemed inevitable for months is apparently about to happen.  Borders Bookstores is preparing to file Chapter 11 bankruptcy because the company's creditors refuse to throw more good money after the bad money they have already lost.  Both the Wall Street Journal and the New York Times are reporting that the filing will likely occur early next week.

Borders, the beleaguered bookseller, is preparing to file for bankruptcy as early next week after efforts to refinance its debt faltered, people briefed on the matter said Friday.


The company had largely failed to persuade publishers to convert payments they had been owed since late last year into interest-bearing loans.

[...]

Neither of Borders’ biggest shareholders — the company’s chairman and chief executive, Bennett S. LeBow, and the hedge fund manager William A. Ackman — has indicated a willingness to put new money into the bookseller, these people said. Mr. Ackman disclosed in a regulatory filing late last year that he would be willing to loan Borders up to $960 million to finance a merger with Barnes & Noble, the company’s bigger rival.

Publishers are truly stuck between a rock and hard place when it comes to dealing with Borders.  On the one hand, they, as a group, have potentially lost several hundred million dollars on books already delivered to the chain.  On the other, if they cannot find a way to work with Borders that will keep the company in business, a major seller of printed books is lost to them forever.  In today's publishing environment, one has to wonder if such a large chain of bookstores can ever be replaced.

Interestingly, Borders has apparently not given up on the idea of forcing itself on the Barnes & Noble chain.  Such a merger might save a healthy percentage of the Borders outlets (for now), but I can't help but wonder how the deal would affect the economic health of the already weakened B&N chain.

If you're a gambler, Borders stock can be had for about 25 cents a share.  Do you feel lucky?