Hedge fund financier acknowledges $125 million loss on Borders investment
One of the top investors in Ann Arbor-based Borders Group Inc. acknowledged that his New York-based hedge fund has lost $125 million on its investment in the book store chain, Bloomberg BusinessWeek is reporting.
Activist investor Bill Ackman of Pershing Square Capital Management "admits" the Borders investment was a mistake, the magazine says in a lengthy profile story.
The statement may serve as an acknowledgment that Borders can't avoid filing for bankruptcy protection, a move that would almost surely wipe out the equity of all shareholders. Borders is believed to be close to filing for bankruptcy.
Borders' entire market capitalization — the value of all of its stock — is less than $30 million.
Ackman told CNBC in February 2010 that there was a "low probability" of a bankruptcy filing. In December, he announced that he would be willing to help finance a Borders bid to acquire Barnes & Noble and merge the retailers, but analysts mostly didn't like the idea.
Other investors who stand to lose millions in the event of a Borders bankruptcy filing include activist investor Bennett LeBow, who plowed $25 million into Borders in May and became CEO of the company a month later.
Borders, facing a cash crunch, said in January that it had secured a tentative financing deal from GE Capital. But the deal was contingent upon securing additional concessions from publishers as well as more outside financing.
Borders employs about 550 workers at its Ann Arbor headquarters and 19,000 overall. The company's stock (NYSE: BGP) was trading at $0.41 this morning, up $0.04 on the day.
Contact AnnArbor.com's Nathan Bomey at (734) 623-2587 or nathanbomey@annarbor.com. You can also follow him on Twitter or subscribe to AnnArbor.com's newsletters.
Comments
Kai Petainen
Fri, Feb 18, 2011 : 3:27 a.m.
*sigh* it doesn't always work, but when looking at stocks to buy, look closely at the ones with insider selling. especially the ones that had insider selling before/after a deal and before a negative earnings announcement. i wish i had spoken earlier about borders... but i was too afraid to.... because i live in this town. 2 huge lessons here: 1. don't play favorites to stocks, just because you live nearby 2. watch the insider selling.
Tom Joad
Fri, Feb 11, 2011 : 8:07 p.m.
I invested a few thousand in Borders over the years. That investment is sitting on my bookshelf.
Soothslayer
Sat, Feb 12, 2011 : 1:55 a.m.
Yeah but they only realized a percentage of that, most of the cost went to the goods (publishers) themselves. Don't expect any dividends on a few hundred dollars net.
Edward Vielmetti
Fri, Feb 11, 2011 : 4:33 p.m.
The SEC 8-K filing about the stock delisting of Borders tells a bit more about this; dated February 3, 2011. <a href="http://sec.gov/Archives/edgar/data/940510/000095012311009333/k50023e8vk.htm" rel='nofollow'>http://sec.gov/Archives/edgar/data/940510/000095012311009333/k50023e8vk.htm</a> Pursuant to the Warrant and Registration Rights Agreement dated as of April 9, 2008 (the "Warrant Agreement") between the Company and Computershare Trust Company, N.A., as warrant agent, the Company has issued stock purchase warrants to acquire 25,944,236 shares of the Company's common stock, subject to adjustment (the "Warrants"), to Pershing Square Capital Management, L.P. and its affiliates ("Pershing Square"). Under the terms of the Warrant Agreement, upon the occurrence of a "Delisting Event," the Company, at the option of the holders of the Warrants, is obligated to redeem the Warrants for cash for an amount equal to their "Cash Redemption Value." The term "Delisting Event" is defined in the Warrant Agreement as any event or series of events as a result of which the Company's common stock ceases to be listed on the NYSE or the Nasdaq Stock Market, Inc. The "Cash Redemption Value" of any Warrant means the fair market value of the Warrant as of the date of the Delisting Event, as determined by an independent appraiser based on a valuation methodology provided in the Warrant Agreement. The failure of the Company's common stock to continue to be listed on the NYSE may accordingly trigger a Delisting Event resulting in the right of Pershing Square to require the Company to redeem the Warrants for an amount in cash equal to the Cash Redemption Value of the Warrants as of the date of the Delisting Event.