Borders Group Inc. (BGP) won a one-year extension of a loan from
its largest shareholder, Pershing Square Capital Management LP, and
said it would allow its right to compel a sale of its U.K.-based
Paperchase gifts and stationery business to Pershing Square to
expire.
"The extension of the loan gives us some necessary breathing
room, which is important in the current economic environment," said
Chief Executive Ron Marshall. "We are also pleased to retain
Paperchase, which is a successful and important business throughout
the U.K. and other markets as well as in our Borders superstores
throughout the U.S."
Pershing Square, the fund run by activist investor William
Ackman, agreed to the extension of the $42.5 million loan until
April 1, 2010, on its current terms, including an interest rate of
9.8%, substantially below market for comparable financing.
Pershing Square made the loan last year and had already extended
the deadline twice this year.
Borders also said it is resetting the strike price on Pershing
Square's 14.7 million warrants to 65 cents a share.
Earlier this month, the struggling books and music retailer said
it would cut 742 jobs, less than 3% of its work force, as it trims
store management to match reduced sales volume.
Last month, Borders cut about 12% of its corporate work force
and several high-level corporate positions to reduce management
layers. In January, the company ousted its chief executive and his
management team, installing Marshall, who has a financial
background.
The book chain, like almost all retailers, had a disappointing
holiday season. But its problems stretch back considerably further.
A year ago, the company disclosed it faced a potential liquidity
crunch and put itself up for sale. Despite its weak stock price,
Borders couldn't find a buyer.
Borders' shares closed Monday at 65 cents, up 3.2%, and did
trade after hours. The shares have fallen 95% in the past year.
-By Kathy Shwiff, Dow Jones Newswires; 201-938-5975;
Kathy.Shwiff@dowjones.com