Borders Bankruptcy, Opportunity For Competitors (BGP, BKS, BAMM, AMZN)

Borders Group, Inc. (NYSE: BGP) has confirmed what most thought was inevitable.  It has filed for bankruptcy protection under Chapter 11.  It has secured a commitment for $505 million in Debtor-in-Possession financing and will continue to operate as a normal business as far as the retail level is concerned.

The company referred to an environment “of curtailed customer spending” and its ongoing discussions with publishers and other vendor related parties along with its lack of liquidity.  The company does not have the capital needed to remain viable in today’s environment.

The financing was led by General Electric Co. (NYSE: GE) under GE Capital.  The company intends to honor its Borders Rewards program, gift cards and other customer programs, and it also expects to make employee payroll and continue its benefits programs for its employees.

Store closings are coming.  The company noted that it will undertake a strategic Store Reduction Program and it has identified certain underperforming stores that come to about 30% of the national store network.  These will be closed over the next several weeks.  The website and online commerce site Borders.com, will continue to run in normal course.

With stores closing, this may actually have a positive effect for rival booksellers.  Barnes & Noble, Inc. (NYSE: BKS) trades at $18.69 versus a 52-week range of $11.89 to $24.71. The much smaller Books-A-Million Inc. (NASDAQ: BAMM) with a $90 million market cap trades at $5.83 versus a 52-week range of $5.27 to $8.43.  It might seem fair to note that Amazon.com Inc. (NASDAQ: AMZN) would win from this as well, but isn’t it more than obvious that Jeff Bezos might have already been the victor here in book sales?

The Chapter 11 petition was filed in the U.S. Bankruptcy Court, Southern District of New York.  Completion of the DIP financing arrangements is subject to approval of the Bankruptcy Court and the satisfaction of certain conditions provided in the financing commitments received by the company from the lenders providing such financing.

If you owned the common stock, your outcome is likely a tax write-off against your other gains in other stocks.  The common shareholder is likely to walk away with zero as is usually the case in Chapter 11 reorganization of public companies.

Borders closed at $0.23 (or $0.2284) yesterday against a 52-week range of $0.20 to $3.29.  As of its October 30, 2010 balance sheet, the company’s net tangible assets were -$40.8 million.  Where is Freddie Mercury when you need him?  Another one bites the dust.

JON C. OGG