Borders Gets New Deal with Ackman

This is really good news for shareholders…

Here are the new terms:

* A lower interest rate of 9.8% on the $42.5 million senior secured term loan. The original Pershing Square financing commitment carried a 12.5% interest rate.

* An increased backstop purchase offer (“put”) of $135 million for the international subsidiaries. The original Pershing Square financing commitment included a purchase obligation at a price of $125 million. As previously stated, Borders Group believes its international subsidiaries are worth substantially more than the amended backstop purchase offer price and the company has retained the right to continue its ongoing strategic alternatives process for these businesses.

* A reduction in the number of warrants issued at closing to Pershing Square to 9.55 million warrants to purchase company common stock at $7.00 per share and a reduction in the term of all warrants issued to Pershing Square from 7.5 years to 6.5 years. The original Pershing Square financing commitment included 14.7 million in up-front warrants at $7.00 per share. Under the new agreement, Borders Group is required to issue an additional 5.15 million warrants to Pershing Square if any of the following three conditions occurs: the company exercises the put related to the sale of the international subsidiaries, a definitive agreement relating to a change-of-control of the company is not signed by October 1, 2008, or the company terminates the strategic alternatives process.

“We are pleased to have reached a final financing agreement with Pershing Square that includes more advantageous terms and still provides Borders with the necessary funding to continue implementing our key initiatives,” said Borders Group Chief Executive Officer George Jones. “The process of reviewing alternative financing proposals over the past two weeks was beneficial as it yielded an outcome that is better for our company and our shareholders. We are pleased to have the backing of Pershing Square, our largest shareholder, as we move forward and we appreciate their continued confidence. Borders is now turning its focus to the broader strategic alternatives process.”

Essentially Ackman has told the company “I’ve got your back. Go get any offer you can and I will make you a better one.” This really does illustrate the belief ha has in the prospects for the company. It also shows us how bad he wants to keep control of it. Rather than let a third party come in and stake a claim, he has given the company the latitude to shop for deal that he will willingly beat. Good…

Disclosure (“none” means no position):Long BGP

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