Monday, September 24, 2007

Borders announces sale of UK arm

Borders UK and Ireland has been sold to Channel 4 chairman Luke Johnson's Risk Capital Partners for a £10m up front cash payment plus an additional deferred £10m cash consideration.

Borders Group will retain an equity interest of around 17% in the business
The transaction includes all 41 Borders superstores in the UK, the Borders superstore in Ireland and all 28 Books Etc stores in the UK. Risk Capital Partners also retains the right to use the Borders and Books Etc brand names. Risk Capital Partners has set up a new, wholly-owned subsidiary, Bookshop Acquisitions, for the purpose of acquiring Borders.

Chief executive David Roche will remain as c.e.o. of Borders UK and Ireland and will become a shareholder going forward. Together with RCP he will carry out a comprehensive plan to revitalise the business. He said that the transaction would transform the balance sheet of the business going forward: "it will be virtually debt free and have tangible net worth of over £75m,".

Roche said: "The securing of a new investor is exciting and good news for Borders in the UK and Ireland and a great compliment to our brand, business and staff. Moreover, I am delighted that out of the options presented over the past months, this is this one that has the most potential to provide continuity of the Borders experience that we have all worked so hard to build since our launch in 1998. It has been almost 6 months since we announced the start of this process back in March and we now have a agreeable result and a stimulating future that is in our own hands. This interim period can often prove a major, and negative, distraction to the strongest of businesses. I am so proud of everyone working across Borders that our performance has actually grown and improved significantly over this period. With the support and experience of RCP, I am relishing the opportunity to lead the company to success in the future."

Luke Johnson, chairman of Risk Capital Partners, said: "We are excited by the opportunity presented by Borders UK and Ireland and pleased that Borders Group will have an equity position in the new company. We intend to build on the strength of the business and this well-respected brand as one of the UK's largest book retailers. Our strategy will focus on improving sales and optimizing the store base while improving margins and inventory management."
Johnson said that he believed "passionately in the future of books and think Borders has a great formula". He added: "These are mostly well-invested, new shops in excellent locations. Around 30 million customers visited the stores last year, with an average dwell time of an hour. We have an experienced management team now free to run the business as an independent British operation. We know many book buyers want to browse and get great personal service, and we believe Borders delivers that. As a published writer from a family of writers, I understand the cultural importance of books and have seen through Richard & Judy's book club at Channel 4 how people can be stimulated to buy and read books."
"The sale of our U.K. and Ireland subsidiaries is a major step forward in our previously announced strategic plan to drive a turnaround of Borders Group," said Borders Group c.e.o. George Jones. "This sale allows us to focus investment and resources on our core business, which is the US superstore segment, and gives the UK and Ireland business the opportunity to succeed with the focus and investment Risk Capital Partners will bring. In addition, the equity interest Borders Group received allows our company to participate in the potential future upside of the U.K. business."

Borders Asia Pacific is not included in the sale. Neither is the company's Paperchase operation, which includes shops within existing Borders stores in the UK and Ireland, and in Borders superstores in the US, as well as its freestanding stores in the UK.
Borders Group said it will incur a non-cash, after-tax loss for the sale of the UK and Ireland subsidiaries of approximately $115 million with minimal tax benefit. The loss will be recorded in the third quarter.

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