Tobacco executive, investor becomes chairman of Borders Group Inc. after $25 million deal
A tobacco executive previously tied to activist investing has been named chairman of Ann Arbor-based Borders Group Inc. after he pumped $25 million into the book store chain, officials announced this morning.
Bennett LeBow, chairman of tobacco holding company Vector Group Ltd., was elected chairman of Borders, and previous chairman Richard "Mick" McGuire resigned. LeBow personally purchased 11.1 million shares of Borders' common stock at $2.25 a share. The stock (NYSE: BGP) closed at $2.23 yesterday.
Borders headquarters on Phoenix Drive in Ann Arbor.
It was not immediately clear whether LeBow, now the largest individual shareholder of Borders stock, would make specific
demands or has a defined vision for the beleaguered chain. The deal
could signal a new direction for the company, which has been struggling
to reverse a continuous revenue slide in recent years. The Wall Street Journal said the deal gives LeBow some 15 percent of the company's outstanding shares.
Borders said in a press release that LeBow's investment would further shore up the company's finances.
"Ben’s investment will improve the company’s capital position, and provide greater stability as we execute strategies to transform the brand,” Borders interim CEO Mike Edwards said in a statement. “As an astute investor and business operator with a strong technology background and proven experience with driving company turnarounds, he will play an extremely important role in helping us redefine the Borders brand that is so critical to unlocking a turnaround for Borders.”
LeBow, who has previously teamed up with activist investor Carl Icahn, is a tobacco industry veteran whose company controls cigarette maker Liggett Group.
Vector Group's CEO, Howard Lorber, also joined Borders' board as a result of the investment.
A spokesman for LeBow said he preferred not to comment about the announcement. Borders declined to make Edwards available for an interview.
Borders is also expected to call a special meeting of its
shareholders to vote on whether to issue an additional stock purchase
warrant allowing LeBow to acquire an additional 35.1 million shares for $2.25 each. The deal comes with a caveat:
"If the issuance of the warrant and warrant shares is not approved
by the company’s shareholders, the company will be obligated to issue
to Mr. LeBow 35.1 million stock appreciation rights," Borders said.
"Upon the exercise of the stock appreciation rights, Borders Group
would be required to make a cash payment with respect to each right
equal to the excess, if any, of the future market price of the
company’s common stock over the $2.25 base price provided in the stock
appreciation rights."
The investment comes less than two months after Borders dodged a financial bullet by refinancing its revolving credit facility and paying off a $42.5 million term loan to investor Bill Ackmann of New York hedge fund Pershing Square Capital Management, Borders' largest individual shareholder until this deal..
Borders said today that Pershing "has indicated its support for the (LeBow) transaction."
The deal triggers an existing agreement that allows Pershing to receive 2.7 million warrants for Borders stock exercisable at a price of $0.65 a share. Also, after LeBow receives the additional 35.1 million shares, Pershing will receive another 8.6 million warrants at the price of $0.65 a share.
Borders employs about 650 workers at its headquarters on Ann Arbor's Phoenix Drive. The firm's same-store sales in the fourth quarter of 2009 dropped 14 percent as the company’s annual loss dropped from $186.7 million in 2008 to $109.4 million in 2009.
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
CynicA2
Fri, May 21, 2010 : 10 p.m.
I wonder if Ackmann/Pershing Square retains their 17% holding of Border's common, or did they just pass the hot potato to Lebow/Vector, in effect. The article doesn't really say, one way or the other. Unless Mr. Lebow is some kind of magician, the solution(s) to Border's fundamental business problems may well remain elusive. Perhaps some aspects of this deal haven't been made public.
Paul Taylor
Fri, May 21, 2010 : 8 p.m.
To say Borders doesn't make money off people reading books in the store is true, but only to a very small degree. Borders (full disclosure: I worked at the downtown A2 store from 94 to 97) used to welcome people into its stores: plush chairs, little nooks to sit in whilst perusing books, always a knowledgable staff member on-hand to help, etc. Not so much anymore. In around 1997, the Binkies (Borders, Inc corporate types), got a bad case of "shrinkage fever," and started taking draconian measures to combat theft, including security cameras (the obvious thing) and redesigning floor layout (the not so obvious thing). This came on the tails of the Waldenbooks beancounters' slicing away at the number of in-store staff, and removing obstacles to the hiring of unqualified new staffers (I recall the first signs of this problem, when a staffer, in response to a customer request, asked, "Who's Schubert?") So, basically, Borders spent several years telling customers in their stores that a.: we don't trust you, b.: we're watching you, and c.: when it comes to customer service, you're on your own. These are the reasons Borders might not be doing so well in the stores. As for the.com end of business... Heh. It was FUBAR from the beginning. It took Borders years to figure it out. And, when they did, they opted to 'collaborate' with Amazon, and I don't think you need a business degree to figure out why that might have been a lousy idea for Borders. Of course, my degree is in theatre, so go figure. Speaking of which, I need to get back to my show...
Anonymous Due to Bigotry
Fri, May 21, 2010 : 7:02 p.m.
Obviously this means that Borders is going to start selling cigarettes. Or maybe they'll just try to help pipes make a comeback.
stunhsif
Fri, May 21, 2010 : 6:48 p.m.
Have tried to buy books from Border's online, they are always about 10% higher than Amazon or Barnes and Noble. This guy just invested and is going to lose his 25 million bucks. A sucker is born every day! Sad that Border's is going bye bye and I mean it. Ann Arbor cannot afford more jobs lost!
AlwaysLate
Fri, May 21, 2010 : 11:59 a.m.
@braggslaw...you are correct abour Borders complete failure with it's.com business...twice! But, you also underline another problem that Borders brick & mortar store has had for many years. "I love reading the books "in" brick and mortar stores..." Borders and other bookstores do not make any money off people who read the books in the store but don't buy the books. That is why we have libraries!
braggslaw
Fri, May 21, 2010 : 9:59 a.m.
There is a place for brick and mortar bookstores, but Borders has failed in the online market and needs to formulate a new business case to address floorspace, e-readers etc. I lovereading the books in brick and mortar stores(I can thinkg of only a few other things I would rather touch) but they are a huge capital and inventory investment that must be offset by other revenue flows. I hope Borders figures it out, I would hate to see them go under.