But the company got a stay of execution yesterday when it announced that its $42.5 million loan agreement with William Ackman's Pershing Square Capital Management had been extended for another year. One explanation for Ackman's lenience is his status as the company's largest shareholder in addition to being a major creditor.
"What this means is that Borders has another 12 months to pay back the loan at below-market terms," CFO Mark Bierley told the Wall Street Journal(subscription required). "We can use those funds to manage the business, while retaining a strategic asset. Paperchase is a positive business that has greater value."One problem is that the Pershing loan carries an interest rate of 9.8%. To give you an idea of how desperate Borders is for cash, the deal also repriced 14.7 million warrants previously granted to Pershing. The strike price had been $7. Now it's 65 cents, giving Ackman a shot at a major windfall if Borders somehow manages to survive.
Over the past year or so, I've detailed Borders' myriad strategic blunders from overly aggressive expansion to dumping money into the e-commerce sinkhole with no hope of seeing any return on investment because of more established, better-financed competitors.
For years, well-meaning liberal types have urged people to "support their local independent bookstores." Now it may be more important to "Support your local big-box, NYSE-listed multinational."
Borders will release its fourth quarter results after the close of trading today. The timing of the Ackman loan extension announcement could be seen as PR ploy to distract investors from what will almost surely be another round of lousy numbers.