Tag: bgp

The good news for shareholders is that Ackman is in this thing (Borders (BGP))for the long haul…

From the filing:
As of January 16, 2009, as reflected in this Amendment No. 9, the Reporting Persons are reporting beneficial ownership on an aggregate basis of 25,297,880 shares of Common Stock (approximately 33.62% of the outstanding shares). This includes warrants covering 14,700,000 shares of Common Stock, which represents 9,550,000 warrants received on April 9, 2008 and 5,150,000 warrants received on October 1, 2008 (each, as previously disclosed). The Reporting Persons own cash settled, total return equity swaps covering 4,805,463 notional shares of Common Stock (as previously disclosed). The notional shares that underlie such swaps are not included in the totals set forth in the charts earlier in the Schedule 13D. The aggregate economic exposure of the Reporting Persons to shares of Common Stock, including the aggregate shares of Common Stock beneficially owned by the Reporting Persons plus the aggregate notional shares underlying such swaps, represents approximately 40% of the sum of the outstanding shares of Common Stock and the shares of Common Stock underlying such warrants.

Item 4. Purpose of Transaction

Item 4 is hereby supplemented, as follows:
On December 22, 2008, Pershing Square, certain of its affiliates and the Issuer entered into an agreement (the “First Amendment to the Senior Secured Credit Agreement”) to extend the deadline for repayment of the $42,500,000 senior secured term loan owed under the Credit Agreement by the Issuer to Pershing Square, from January 15, 2009 to February 16, 2009.

On December 22, 2008, Pershing Square and the Issuer entered into an agreement (the “Extension of Purchase Offer”) to extend Pershing Square’s backstop purchase offer on behalf of certain funds managed by Pershing Square, set forth in the Purchase Offer Letter, from January 15, 2009 to February 16, 2009. On January 16, 2009, Pershing Square and the Issuer further agreed to amend the Purchase Offer Letter (the “Amendment of Purchase Offer”), such that at the election of the Issuer and subject to certain terms and conditions, certain funds managed by Pershing Square will be obligated to purchase all, but not less than all, of the issued and outstanding capital stock of Paperchase Products Ltd. and its subsidiaries (together, “Paperchase”). In advance of the acquisition of Paperchase, the Issuer (or certain of its affiliates) will either acquire any issued and outstanding capital stock of Paperchase currently not owned by the Issuer (or certain of its affiliates), or cause any third party holders that own capital stock of Paperchase to become parties to the stock purchase agreement for the sale of Paperchase to certain funds managed by Pershing Square. Pursuant to the terms of the Purchase Offer Letter, as amended by the Amendment of Purchase Offer, funds managed by Pershing Square are no longer obligated to purchase the Issuer’s approximately 17% interest in Bookshop Acquisitions, Inc. The Purchase Offer Letter remains subject to its original terms and conditions, except as expressly amended or modified by the Amendment of Purchase Offer.

The foregoing summary of the First Amendment to the Senior Secured Credit Agreement, the Extension of Purchase Offer, the Amendment of Purchase Offer and the transactions contemplated thereby is not complete and is subject in its entirety to the First Amendment to the Senior Secured Credit Agreement, the Extension of Purchase Offer and the Amendment of Purchase Offer, which are filed as Exhibits 99.1, 99.2 and 99.3 hereto and are incorporated herein by reference.

The Reporting persons have been and continue to be in discussions with the Issuer regarding financing transactions, including the backstop purchase offer, set forth in the Purchase Offer Letter, as extended and amended pursuant to the Extension of Purchase Offer and the Amendment of Purchase Offer, and alternative commitments and transactions (collectively, “Financing Transactions”). Notwithstanding anything to the contrary in this Schedule 13D or otherwise, the Reporting Persons may cease these discussions at any time and can make no assurance that any Financing Transaction will be successfully negotiated and/or consummated.

FIRST AMENDMENT TO THE SENIOR SECURED CREDIT AGREEMENT

AMENDMENT OF PURCHASE OFFER

Disclosure (“none” means no position):Long BGP
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Ron Marchall has the experience, that cannot be argued. What I have not found yet are the ties to Bill Ackman and Pershing. This must be the reason for the delay in the Pershing financing agreement.

Borders Group (BGP) today announced several management changes–including the appointment of a new Chief Executive Officer–to more aggressively drive a turnaround of the company within today’s challenging economy. Effective today, Ron Marshall, who most recently was Principal of Wildridge Capital Management, a private equity firm he founded approximately three years ago, has been appointed President and Chief Executive Officer and will serve as a Director. Marshall, 54, replaces George Jones who served in that same capacity since July 2006.

Marshall brings more than three decades of financial and retail experience to Borders Group. Prior to founding Wildridge Capital, he was Chief Executive Officer for eight years with Nash Finch Company, a $5 billion food distribution and retail organization, where Marshall was responsible for a turnaround that included the quadrupling of earnings over a six-year period as well as a 40% improvement in EBITDA over the same period. Marshall earlier helped drive a turnaround of $4 billion supermarket retailer Pathmark Stores, Inc., where he served as Executive Vice President and Chief Financial Officer from 1994 to 1998. Preceding that, Marshall served in senior management positions in a variety of retail companies including Dart Group Corporation’s Crown Books division and Barnes & Noble college bookstores.

“Progress has been made by Borders Group over recent quarters within the challenging economy to reduce debt, improve cash flow, cut expenses, enhance inventory productivity and improve margins, but it is imperative that the company more aggressively attack these initiatives to address its long-term future,” said Borders Group Board of Directors Chairman Larry Pollock. “We are confident that Ron Marshall, with his strong financial and turnaround expertise, vast retail experience and specific bookstore background, is the right choice to lead a new management team and boldly take these efforts to the next level.”

“Borders is a powerful brand with millions of loyal customers who love to shop in the stores,” said Marshall. “These are tremendous assets that can be built upon once the balance sheet is strengthened and the company is on more solid financial footing. I’ve led turnarounds at other retail organizations and look forward to leading a new management team at Borders to drive profitability and help ensure lasting success for this great name in retail.”
In accordance with New York Stock Exchange rules, Borders Group reported that it will issue to Marshall by Feb. 1, 2009 an employee inducement award consisting of options to purchase 1.8 million shares of the company’s common stock. The options vest in installments over the three-year period following Marshall’s start date. Marshall will also be issued 200,000 options at the same time with similar terms as those of the employee inducement award in accordance with the existing company shareholder-approved long-term incentive program. A full description of terms will be contained within a Form 8-K disclosure the company intends to file this week.
Other Management Changes

In addition to Marshall’s appointment as Chief Executive Officer, other management changes were announced. Mark Bierley has been named Chief Financial Officer and Executive Vice President, Finance. He replaces Ed Wilhelm, who joined Borders Group in 1994 and held the Chief Financial Officer position for the past eight years. Wilhelm will stay on with the company for a transition period. Bierley has more than 20 years of financial and accounting experience and has been with Borders Group since 1996. He has progressed through a variety of management positions within the company, including inventory and financial posts, and most recently served as Senior Vice President, Finance.

Anne Kubek has been appointed Executive Vice President, Merchandising and Marketing. In that position, she replaces Rob Gruen, who is leaving Borders Group after approximately two years. Kubek has been with the company since 1990, beginning her career as an assistant manager of the Borders store in Rockville, Maryland, and progressing through a series of management positions within the store organization. She came to the corporate office in 1996 and over the years has served as Vice President, Field Human Resources; Vice President, Book Merchandising; Vice President, Borders Store Operations and most recently as Senior Vice President, Borders Stores, a post she has held since 2005.

Additionally, Dan Smith has been named to the new position of Chief Administrative Officer. Smith, who has been with Borders Group since 1995 in a variety of leadership roles, including his most recent position as Executive Vice President, Human Resources, retains his current responsibilities, but also takes on leadership of the company’s information technology group, which is headed by Chief Information Officer Susan Harwood, who remains with the company.
“The Board is pleased to bring forth the considerable talents of individuals with strong track records, well-rounded experience and tremendous industry knowledge within Borders Group to contribute in even more significant ways to the company under the leadership of Ron Marshall,” Pollock added. “This is a great team with outstanding skills. We are confident that they will keep the company moving on the right path toward what can ultimately be a strong long-term future.”

Sales Results-Holiday 2008

Borders Group also released its sales results for the nine-week holiday period ended Jan. 3, 2009. Total consolidated sales were $868.8 million, an 11.7% decline compared to the same period last year. Within the Borders superstore segment, total sales for the holiday period were $652.6 million, which is a 13.6% decrease compared to 2007. Comparable store sales at Borders superstores declined by 14.4% compared to the same period a year ago. On a same-store sales basis, the book category at Borders declined by 11.0% for the period. Borders.com sales for the nine-week holiday period were $20.3 million. Overall, holiday sales started slow and improved during the latter part of the season.

Within the Waldenbooks Specialty Retail segment, total sales for the holiday period were $161.7 million, a 16.4% decrease compared to the same period one year ago. Comparable store sales for Waldenbooks declined by 8.0% compared to holiday 2007.

Total International segment sales were $34.3 million for the period, a 1.4% decrease compared to the same period a year ago. Comparable store sales at Paperchase stores in the U.K. decreased by 6.5% for the holiday period year over year.

“While our recent holiday sales results reflected the difficult retail environment and additional challenges within specific categories of our business, the company’s sales performance and cash generation were within the range of our internal financial plans for the holiday period,” said Borders Group Chief Financial Officer Mark Bierley. “We continue to aggressively implement the range of initiatives that we launched in mid-2008, which have allowed us to reduce expenses and improve working capital to drive improved cash flow and debt reduction.”

Is this a desperation move? Don’t think so. I think it is more of a “Jones took us as far as he could” and now someone else is needed to complete the transition. George Jones did a good job digging the company out of the hole his predecessor left him.

Marshall brings fresh eyes to the situation and a background from PE that inevitably will bring some creative solutions that the company needs to navigate the current credit markets.

Not selling, holding pat…

Disclosure (“none” means no position):Long BGP
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This does make sense…

The WSJ Reports

Borders Group Inc. has agreed to accept books from HarperStudio on a nonreturnable basis, departing from a decades-old publishing tradition.

Under the terms of the deal, the nation’s second-largest bookstore chain by revenue will get a deeper discount on initial orders of books published by the new imprint of News Corp.’s HarperCollins Publishers — 58% to 63% off the cover price, instead of the usual 48%. In exchange, Borders won’t return any unsold books to HarperStudio, instead probably discounting them in the store. (News Corp. owns The Wall Street Journal.)

“The idea of taking inventory and then shipping it back isn’t a good idea for anybody. We’re open to all publishers to discuss alternatives to the traditional return model,” said Robert Gruen, executive vice president of merchandising and marketing at Borders, of Ann Arbor, Mich.

Under standard industry practice dating to the 1930s, retailers can send back whatever new titles don’t sell for full credit, with publishers paying for shipping. This has created a mass of titles that are trucked from one warehouse to another until they eventually are sent back to the bookstore chains, where they are sold for a significant discount to the list price.

People in the industry estimate that between 30% and 40% of all consumer adult titles are eventually returned to their publishers.

“Returns have never made sense in our business, and with the recent economic downturn, publishers and booksellers are more open than before to experimenting with models that might decrease waste and increase profit,” said Robert Miller, president and publisher of HarperStudio. When he started the imprint earlier this year, Mr. Miller said he intended to shake up traditional book-publishing economics.

Pro’s are that the new arrangement instantly increases margins or, should Borders elect not to go that route, they are now able to become more competitive on prices to the consumer without pressuring current ones. The key to making it work is inventory. It now become more important than ever to maintain proper levels to maximize sales of new titles at higher prices.

Borders this year has shown that it is able to do that and having control of the website from Amazon (AMZN) does give them a far more profitable clearing house for unsold titles.

This is a very good move, what needs to happen next is clarity on the “alternative financing arrangement with Bill Ackman and Pershing.

Disclosure (“none” means no position):
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Three little words have cast doubt on the retailer that otherwise is doing everything it said it would.

In reviewing the last earnings call Borders (BGP) has made significant progress this year on all stated goals..

* Debt down over 30%
* Cash flow from negative $100m to plus $9 million
* Cost cuts surpassed the $120 million goal to $140 million now
* The new concept stores have exceed expectations
* Borders.com has over 30 million Rewards Members and adds over 120k a week.

Here is the problem:
“Regarding Paperchase we retained the right to exercise the put option to sell Paperchase to Pershing Square Capital Management for $65 million and we are also in discussions with Pershing Square regarding an alternative financing transaction.

Of course no assurance can be given as to whether an alternative financing transaction will be entered into or contemplated.”

Later, in response to a question, CEO Jones says:
Matthew Fassler – Goldman Sachs:
“Related to the other deal you’re looking at with Pershing you talked about retaining the put on Paperchase but you said you’re looking at an alternative strategic transaction to the extent and if you’re free to shed any light on what kind of transaction that might be we’d be interested.”

Edward Wilhelm
“We do have, we have retained the rights to the put, and the disclosure in the release was an alternative financing transaction. And we can’t comment any further then what was in the release.”

Matthew Fassler – Goldman Sachs
“Would that be presumably a more comprehensive transaction that goes beyond Paperchase?”

Edward Wilhelm
“We really can’t comment any further.”

George Jones
“The key thing to note though is we still have the right to the put so anything we do is obviously going to be favorable for the company.”

The lack of any further clarity leaves people wondering. Now, of course folks think the deal will be favorable to the company. But, does it mean it will stop it from Chapter 11 or does it mean it will provide additional liquidity to increase concept store openings? Does it mean credit markets are closed to the retailer or does it mean thy can just get a better deal from Pershing? Does it mean Ackman may just buy the rest of the company for the $25 million it will cost him at these prices and just spin it out in a few years and they want to avoid that?

You could go one for another 20 scenario’s and until Borders or Ackman come out and settle folks down, the stock will languish. Do I think the company is in trouble? No. But, I have no ammunition to make the argument when they give us nothing.

I know some folks who have spoken the Wilhelm as essentially said the same things and the reply was that they “understood but could not announce specifics now”. We do not need specifics…just a direction..

Disclosure (“none” means no position):Long BGP
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Reader Justin submits: Why Sears (SHLD) is NOT going bankrupt?

In this volatile market, anyone can say anything to put downward pressure on a stock. In many cases deserved, in some cases absurd, and in the case of Sears a little of both.

Let’s start with the deserved part. Obviously, retail is doing terrible this year as an investment. However, the woes at Sears go beyond the macro environment. They have made bad decisions in some cases, suffered from management turnover, and communicated very little beyond what’s required by a public company. On top of that, they recently lost a well-respected, activist shareholder, Bill Ackman. Bill has taken an absolute beating on his investments in Sears, Target, and Borders, so he may have had about all the fun he can handle in retail. In short, it hasn’t been all that pretty, but the shares reflect much worse.

The absurd is the idea that Sears has some kind of solvency risk as some have floated. Why is this absurd? Here’s my case:

1. Last quarter Sears generated FCF (free cash flow) of over $400 million. Target, a “good” retailer actually had no FCF last quarter, they burned over $900million. In fact, Target hasn’t generated FCF in the last 3 quarters. Over the same time frame Sears generated a staggering $1.5 BILLION in FCF. So yes Sears is making money hand over fist in this environment even with mediocre execution.

2. Eddie Lampert’s investment fund ESL owns over 50% of Sears. And Sears makes up over ½ his fund. And his fund is still making investments in other equities. Now if you are thinking that ½ your fund may evaporate into insolvency or you are worried about investor redemptions then you preserve cash if not generate cash by selling positions. What you don’t do is make more investments, which is what he’s doing.

3. Sears announced the purchase of additional shares of Sears Canada in November. Why spend your cash on buybacks and now additional shares in Sears Canada if you are worried about your cash position?

4. I’ve been to several Sears and Kmarts in recent weeks and they are all hiring.

In conclusion, Sears is hiring people, buying shares in, generating FCF, and ESL continues to make investments. None of these indicate to me that there’s any solvency concern by the controlling shareholder.

Disclosure (“none” means no position):Justin is long SHLD
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