BORDERS COULD END UP AT HEDGE FUND
Danny John in the Sydney Morning Herald March 22, 2008

THE Australian part of the Borders bookshop empire could be sold to the group's biggest shareholder, an American hedge fund, in a wide ranging deal worth $US125 million ($140 million) following a rescue plan unveiled yesterday for its financially stricken US parent company.
The proposed handover, which also involves an emergency loan of $US42.5 million to Borders Inc by the parent, Pershing Square Capital Management, comes little more than a week after the collapse of the expected sale of the upmarket Australian stores to the owners of rival book chain Angus & Robertson.
A&R Whitcoulls, itself controlled by private equity player Pacific Equity Partners, dropped out of the running, citing disagreements over Borders Inc's desire to take as much as a 25 per cent stake in the expanded local business and float the operation on the Australian Stock Exchange.
There were also doubts over whether A&R could raise the debt to fund the takeover, given the global credit crunch. Borders Inc indicated as much yesterday in its announcement to the New York Stock Exchange.

But with the A&R offer now effectively dead, Borders can trigger the sale of its Australian and New Zealand businesses to Pershing Square before January, in exchange for the short-term $US42.5 million lifeline and additional financing of $US125 million.
In effect, Borders has guaranteed it can tap its 18 per cent shareholder for the money by using its international division as collateral. Its financial plight has also led Borders Inc to put up the "for sale" sign over the whole group.
Pershing Square, run by Wall Street financier Bill Ackman, would also take on Borders' Singapore stores and the group's 17 per cent stake in its British business, which was sold last year to generate cash for the ailing American chain.
Mr Ackman is better known in the US for shaking up the boards at McDonald's and Wendy's fast food restaurants, the latter of which ended up spinning off its Tim Hortons doughnut stores to appease shareholder demands for better returns.

It is still possible Borders Australia could end up in the hands of another buyer since the arrangement with Pershing allows the US company to pursue other bids which it says could be substantially higher than $US125 million.
George Jones, Borders Inc chief executive, said the company still had back-up offers despite the failure of the A&R deal.

A price tag of about $120 million has been mentioned by market players for the 28 Australian and New Zealand stores. The Singapore business and Borders' shake in the British company would boost the overall value - which had analysts concluding that the Pershing deal had put a floor under any subsequent deal.
Borders Inc has been given two weeks under the Pershing terms to come up with a better financing alternative, albeit that it admitted the global credit squeeze had exhausted almost all other avenues of fund-raising.