Shares of Borders Group (NYSE: BGP) tanked in after-hours trading Tuesday after the company reported dismal third quarter results and told investors that it had officially given up on its quest to sell itself. Comparable store sales were down 12.8% at the company's flagship superstores, and the company reported an operating loss of $39 million.
The press release added that "Regarding Paperchase, as previously disclosed, Borders Group retains its right to exercise its "put" option to sell its Paperchase business to Pershing Square Capital Management for $65 million and is also in discussions with Pershing Square regarding an alternative financing transaction."
I think that most observers had long ago given up on Borders' hopes of a sale. The company had reduced its debt load by $273 million this year by paring back on inventory, curbing expansion and selling its businesses in Austrlia, New Zealand and Singapore.
Long-term, the company's lousy financial position will make it difficult for it to compete with better-financed competitors like Barnes & Noble (NYSE: BKS), which is something it will have to do now that it's no longer pursuing a sale. Reducing inventory comes at the cost of selection and customer experience. For the same quarter, Barnes & Noble's comparable store sales decreased by just 7.4%.
Borders shares are down 40% in premarket trading (8:58 am).
Toyota Motor Co. (NYSE: TM) -- recently we've seen more and more signs that the slowdown in general and the auto industry troubles particularly have been hurting Toyota too. Today, Fitch Ratings cut Toyota's top-notch credit rating to "AA" from "AAA," as the carmaker was indeed hit by the world auto market slump, high material cost and from a surging yen. TM shares were down 3% by 11 am.
American International Group Inc. (NYSE: AIG) announced late Tuesday it has closed its $40 billion stock placement with the U.S. Treasury under the government's Troubled Assets Relief Program. The Treasury bought shares of AIG equaling 2% of the company on the date of the investment. AIG shares were up 0.5% by 11 am.
Deere & Co. (NYSE: DE) reported that fiscal fourth-quarter net income fell 18% to $345 million, or 81 cents a share, as sales rose 21% to $7.4 billion. Analysts expected earnings of 99 cents a share on sales of $5.2 billion according to FactSet Research. The guidance for fourth quarter was below estimates. DE shares were 6.3% lower in premarket trading (8:03 am). DE shares were down 9.6% by 11 am.
Tiffany & Co. (NYSE: TIF) reported that its third quarter earnings declined to $44 million, or 35 cents a share on lower sales of $618 million. This was above analyst estimates of 26 cents EPS and sales of $697 million, according to FactSet Research. Tiffany said it plans to reduce staff. TIF shares were 8.6% lower in premarket trading (8:03 am). TIF shares were down 4.1% by 11 am.
The earnings season is beginning to wind down as we have passed the halfway mark of the quarter and the holiday season begins in earnest next week with Thanksgiving in the United States.
Bermuda-based Frontline Ltd. (NYSE: FRO) is anticipated by analysts surveyed by Thomson Reuters to be one of the biggest earnings gainers among companies scheduled to report quarterly results this coming week. The oil tanker fleet operator is expected to post third-quarter earnings of $1.97 per share, 86.8% higher than in the same period a year ago, on revenues of $399.5 million (+44.6%). Frontline missed estimates by 6.4% in the previous quarter, and the consensus recommendation by analysts is to hold FRO. While Motley Fool likes its robust dividend, Jim Cramer said in a recent Lightning Round that he prefers rival Nordic American Tanker Shipping Ltd. (NYSE: NAT). Shares have fallen 52.9% in the past three months, and reached a 52-week low of $25.00 on Friday.
Analog Devices Inc. (NYSE: ADI) is also expected to be among the week's biggest earnings gainers. Analysts are looking for the semiconductor chip maker to report a fiscal fourth-quarter profit of $0.44 per share, 31.8% higher than a year ago, on revenues of $661.7 million (+2.0%). Analog Devices has beat estimates in three of the past five quarters, but only missed by 1.3% in the previous quarter. Analysts on average recommend buying ADI, which has a forecast long-term EPS growth rate of 17.3%, which better than the S&P 500 and that of rival Texas Instruments Inc. (NYSE: TXN). Shares sank to a multiyear low of $16.23 on Friday, and are down 41.1% in the past three months.
Barnes & Noble (NYSE: BKS), a bookseller that competes with Borders Group (NYSE: BGP), Amazon (NASDAQ: AMZN), and retailers that stock books such as Wal-Mart (NYSE: WMT), did not do well during the third quarter. Total sales decreased over 4%. A GAAP loss of $0.34 per share was reported versus a GAAP profit of $0.07 per share in the year-ago period. On an adjusted basis, the loss of $0.21 per share missed the call by $0.05, according to this source.
Okay, is it me, or do these numbers basically broadcast loud and clear that Barnes & Noble is not worth one penny of your investment capital? Besides the above, same-store sales took a big dive of 7.4%. That should be the last nail in the coffin of the current Barnes & Noble story, one that reads like a Stephen King novel. Actually, though, it isn't. Another nail to add would be the fact that guidance has been adjusted lower by management. Now, according to CEO Steve Riggio, gross margins are doing okay. I'll skip that chapter, though, as there isn't much substance to it. Who cares about the gross margin at this point. With traffic down and probably due to get worse, a positive tale of the gross margin isn't going to make me want to buy Barnes & Noble as a value play.
So, how will booksellers such as Barnes & Noble (NYSE: BKS), Borders Group (NYSE: BGP), and Amazon (NASDAQ: AMZN) fare during the holiday season? It's an interesting question, one which is examined in an article at The New York Times. The piece talks about how the current recession seems to be affecting consumers and their desire to buy books. At the beginning of the article, two shoppers are browsing in a bookstore -- one buys, the other doesn't. Both have been affected by the bad economy. What are we to make of this?
I'll give you my take on things. Books, unfortunately, are simply not so glamorous these days. And I do think that booksellers are going to have a hard time this holiday season. With all the competition from video games and other media, the printed page just isn't that exciting to a lot of consumers. I don't think that books will be a top priority as the wallet continues to get squeezed and while job security remains an issue. Our attention spans have been cut so short these days, and they're only getting shorter. In an era of MTV quick-edits and PowerPoint presentations, 100,000-word diversions don't feel so diverting anymore.
Books are probably even less exciting to young people. Seriously, how many kids have books on their Christmas lists this year? They may want the latest Blu-ray cartoon from Disney (NYSE: DIS), or the latest Call of Duty game from Activision Blizzard (NASDAQ: ATVI), but I'm not so sure they want the latest Stephen King novel (as for me, I picked up King's latest short-story collection Just After Sunset at my local Barnes & Noble). Many kids have been introduced to the joys of reading through the Harry Potter series, but I don't think Potter will be working his magic this season. If parents do cut back this year on presents, I figure they're going to err on the side of making sure that all the non-book gifts are acquired.
Is there anything the booksellers can do about this?
Having tried unsuccessfully to find a buyer, struggling bookseller Borders Group (NYSE: BGP) was contractually obligated to give Pershing Square Capital, a hedge fund controlled by William Ackman, warrants to acquire its stock. Stifel Nicolaus & Co. analyst David Schick wrote the move will likely dilute shareholder by as much as 9%.
The stock is trading up about 3% today, and the Associated Press described the warrants as "potentially giving its largest shareholder even more reason to push the bookseller toward a sale."
I'm not so sure. While it's true that Ackman now has more to gain from a sale with a significant premium, the cost to a potential acquirer also goes up because of the increase in the number of shares. And given that Ackman already controls 29% of the company's stock, it seems doubtful that he needs any additional incentive to push for increased shareholder value.
More likely, Borders has been unable to sell itself because no one wants to buy it.
With Borders' (NYSE: BGP) efforts at a sale of the entire company so far producing no results, the company is coming up on an important deadline. Under a deal struck with hedge fund manager William Ackman, if the company doesn't sell itself by October 1, Ackman's fund will receive options to purchase 5.15 million shares of the company's stock at $7 per share. Given that that represents a good chunk of the company's 60.5 million shares outstanding, any deal at a substantial premium would become a lot more expensive after October 1.
The Wall Street Journalreports (subscription required) that since "shares of Borders are trading close to the exercise price of the warrants, Mr. Ackman is likely to wait to redeem them until the shares are well above their current level. If Borders misses the deadline to complete a deal and issues the warrants, Mr. Ackman stands to benefit even more from a sale and may begin to exert pressure on Borders to secure a transaction quickly."
I'm not so sure about that. I think the problem is that no one wants to buy Borders -- Barnes & Noble (NYSE: BKS) reportedly lost interest after taking a look at the books -- and the higher cost to a potential buyer that will come with the options grant will make a sale much less likely, however badly Ackman wants it.
Ackman already has a 35.6% stake in Borders, and shareholders are lucky to have someone as smart as him on their side, pushing the board of directors to maximize value. But it may be too late.
Results for the tech stocks in last week's preview were a mixed bag, some beats, some misses, some in line. By and large, expectations for tech companies reporting results this week remain high, though. Here's what analysts surveyed by Thomson Financial are anticipating in the way of earnings, as compared to the same period of the previous year.
The Wall Street Journalreports (subscription required) of upcoming releases this summer such as Andrew Davidson's The Gargoyle, New York Times reporter David Carr's memoir The Night of the Gun, and Ron Suskind's The Way of the World: A Story of Truth and Hope in an Age of Extremism.
There's a separate article on the release of Stephenie Meyer's book Breaking Dawn, which The Journal calls a "vampire romance novel." Borders Group (NYSE: BGP) said it has sold 250,000 copies in the first 24 hours following the book's release.
That's an impressive number, and it may be some cause for hope for shareholders who have taken a beating in booksellers like Borders, Barnes and Noble (NYSE: BKS) and Books-a-Million (NASDAQ: BAMM).
But don't get too excited. Since the first American edition of the first Harry Potter book in October of 1998, shares of Scholastic (NASDAQ: SCHL), a specialty publisher of children's books, have gone from around $20 per share to their current price of $26 -- a gain of 30% over the course of a decade. Not exactly something to get excited about, especially considering it's one of the bestselling books of all time, ever.
The bookstores might get a temporary jolt from late sumer and fall hits, but the long-term fundamentals of the industry will drive results. A new CD from Eminem -- or even The Beatles for that matter -- wouldn't be enough to save a company like Trans World Entertainment (NASDAQ: TWMC). For bookstores, that means the lower prices and wider selection of Amazon.com (NASDAQ: AMZN), or conveniences of stores like Wal-Mart (NYSE: WMT), as well as the onset of digital delivery are the factors investors have to look at.
And even vampire romance novels can't compete with those.
When it comes to companies lacking in any kind of strategic direction, it's hard to top Border Group (NYSE: BGP). In the midst of its efforts to sell itself, Borders recently launched its own e-commerce site to compete with better-financed, and just plain better, rivals like Amazon.com (NASDAQ: AMZN) and Barnes and Noble (NYSE: BKS).
Browsing NewYorkTimes.com this morning, I noticed a banner ad for "the new Borders.com: Free shipping on orders over $25."
Man, that should do a lot to lure customers away from Amazon and Barnes & Noble. Oh, wait. No it won't, because both of those sites offer exactly the same deal. And, just to add insult to injury, so does Books-A-Million (NASDAQ: BAMM).
Basically, Borders has a weak balance sheet and, in the midst of its efforts to put its shareholders out of their misery with a sale, is blowing money on capital expenditures that will give the company the same service as competitors: meaning that most strategic buyers won't pay any extra for the e-commerce site.
The stock's low price has attracted brilliant investors like William Ackman, but given that the company is continuing to make value-destroying decisions, I don't think it's a stock investors should go near.
American International Group (NYSE: AIG) shareholders -- former AIG director, Eli Broad, and two fund managers , who together control about 4% -- are asking for changes to the management and board of the world's largest insurer, which has been struggling with the fallout of the subprime mortgage mess.
Caterpillar Inc. (NYSE: CAT) said it will spend $1 billion over the next two years to expand capacity in five of its Illinois factories, and will shift production at some of its plants to address the demand for machines used mostly in mining and large infrastructure projects. Also, CAT and Navistar International Corp. (NASDAQ: NAVZ) will begin cooperating to pursue new on-highway truck business and cooperate on an variety of engine platforms.
Starbucks Coffee Co. (NASDAQ: SBUX) said Thursday that it has reached a licensing agreement with SSP to open coffee retail stores in more than 150 airports and train stations in Europe. Financial terms were not disclosed.
According to Yahoo! Inc (NASDAQ: YHOO), the Wall Street Journal reported that a severance plan investor Carl Icahn said is "excessively expensive" would come into play if Icahn is successful in his plan to take control of the company's board; Yahoo! maintained that the plan is structured to prevent Yahoo! from altering or dismantling it while under a proxy challenge.
The Financial Times reported that Lehman Brothers Holdings Inc (NYSE: LEH) almost reached a strategic deal with a group of Korean financial institutions as part of its recent capital raising initiative, and the investment bank may still sign an agreement with the Korean companies this year, inside sources said.
A source familiar with the matter told dealReporter that Barnes & Noble Inc (NYSE: BKS) is conducting due diligence, but has not established whether it will competitively bid for Borders Group Inc (NYSE: BGP). Should Barnes & Noble indicate real interest, the biding process could be delayed, the source said.
OTHER PAPERS:
The Detroit News reported that Ford Motor Company (NYSE: F), in an effort to keep up with changing consumer demand in the U.S., is assembling a plan that will shift entire truck plants to car production.
The Wall Street Journalreports (subscription required) that if Nabors Industries' (NYSE: NBR) 78-year old chairman Eugene Isenberg died, the company would have to pay his estate "severance" of $263 million.
According to the Journal, "Dozens of other companies offer lush death-benefit packages to their top executives, according to a Wall Street Journal review of federal filings. Many companies accelerate unvested stock awards after a death, which by itself can amount to tens of millions of dollars. Some promise giant posthumous severance payouts, supercharged pensions or even a continuation of executives' salaries or bonuses for years after they're dead."
What?! A continuation of salaries and bonuses after the CEO dies? I have to tell you: it speaks volumes about how low the performance targets for bonuses are at America's public companies when they can be achieved from 6-feet under. How can a bonus possibly be performance-related when it's paid out even if the executive kicks off? I just don't get it at all.
It gets worse: executives are given hefty parting gifts in exchange for non-compete agreements -- by signing the employment contract, they agree not to go work for a competitor if they part ways. They still get those non-compete payments if they die. But maybe that makes sense: even a dead guy could probably deliver stronger results than Borders Group (NYSE: BGP) CEO George Jones has. Rumor has it that the company has considered replacing him with Tolstoy.
Be sure to read the Wall Street Journal piece. It's depressing, hilarious, and pathetic, all at the same time. If you needed more proof that corporate governance in America is a joke, look no further.
Watching events unfold at Borders Group (NYSE: BGP) over the past year or so has been kind of like watching a drunk guy standing on a bench delivering a speech: it seems crazy, then you think there could possibly be some kind of point, then you quickly realize that, no, the guy isn't making any sense.
Yesterday, the company released a press release succinctly titled "Borders Group Implements Corporate Job Eliminations as Part of Previously Announced Initiative to Reduce Annual Expenses by $120 Million." With phrasing like that, it's a good thing Borders is selling books, not writing them.
The company is cutting 156 corporate jobs in the midst of its efforts to 1) launch an e-commerce site to compete with Amazon.com (NASDAQ: AMZN) and 2) sell itself, with rumors suggesting that Barnes & Noble (NYSE: BKS) is the most interested party.
Shares of 
The earnings season is beginning to wind down as we have passed the halfway mark of the quarter and the holiday season begins in earnest next week with Thanksgiving in the United States.
So, how will booksellers such as 
Having tried unsuccessfully to find a buyer, struggling bookseller 
With 
Results for the tech stocks in 
When it comes to companies lacking in any kind of strategic direction, it's hard to top 
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