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UPDATE: Borders files bankruptcy, to close 2 area stores

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Borders Group Inc., the No. 2 U.S. bookstore chain, filed for bankruptcy in New York on Wednesday morning after management changes, job cuts and debt restructuring failed to make up for sagging book sales in the face of competition from Amazon.com Inc. and Wal-Mart Stores Inc.

Borders will shut about 30 percent of “underperforming” stores and restructure using $505 million in so-called debtor-in- possession financing from lenders led by GE Capital, according to a statement. The 40-year-old chain listed debt of $1.29 billion and assets of $1.28 billion as of Christmas 2010 in its Chapter 11 petition filed today in U.S. Bankruptcy Court in Manhattan. The company plans to restructure and continue to operate.

Borders said Monday morning that it will close its downtown-Indianapolis and Carmel stores. Five other stores in the Indianapolis area are not on the closure list: Castleton, River Crossing, Indianapolis International Airport, Greenwood and Noblesville.

The company began looking for a replacement tenant for its high-profile downtown store at the corner of Washington and Pennsylvania streets about two years ago. The 22,000-square-foot space could be split up to accommodate new tenants.

Borders Group's reorganization is only possible if the company immediately closes 200 of its 642 stores, according to an emergency motion to sell furniture and merchandise filed in Manhattan bankruptcy court Wednesday. Sales need to start no later than Feb. 19 to take advantage of the President’s Day long weekend, and another 75 stores may need to close if concessions aren’t won from landlords, the company said.

“Closing the stores right away is essential because the Debtors are losing approximately $2 million per week at the closing stores,” lawyers for Borders wrote in court pleadings.

“Borders Group does not have the capital resources it needs to be a viable competitor,” the company’s president, Mike Edwards, said in a statement. The filing will give it “time to reorganize in order to reposition itself to be a successful business for the long term.”

Borders, whose market value shrunk by more than $3 billion since 1998, racked up losses by failing to adapt to shifts in how consumers shop. Its first e-commerce site debuted in 2008, more than a decade after Amazon.com revolutionized publishing with online sales. The world’s largest online retailer beat it again by moving into digital books with the Kindle e-reader in 2007, a market Borders entered in July.

“Instead of leading and being innovative, they were certainly a follower,” said Michael Souers, an analyst for Standard & Poor’s in New York.

Borders, based in Ann Arbor, Mich., began looking for a cash infusion in December after disclosing lenders cut its borrowing capacity, and that a failure to find replacement credit could lead to a violation of its loan agreements and a “liquidity shortfall” in the first quarter of 2011.

The company has 639 stores under the Borders, Waldenbooks, Borders Express and Borders Outlet names in the U.S. and three in Puerto Rico, according to the court filing. The company has 6,100 full-time workers and 11,400 part-time employees, it said.

Penguin Putnam was listed as the largest unsecured creditor with a $41 million claim. Hachette Book Group has a claim of $36.9 million and Simon & Schuster Inc. has a claim of $33.8 million. Random House, the publisher owned by Bertelsmann AG, Europe’s biggest media company, has a claim of $33.5 million.

The company in May raised $25 million in a private sale to an entity controlled by Bennet S. LeBow, who was then named CEO and chairman. Pershing Square Capital Management LP is Borders’s largest shareholder, according to the filing. Borders’ biggest shareholders also include Zurich-based UBS AG, according to the court filing. It is typical in Chapter 11 bankruptcy for equity holders to receive no return.

Borders estimated that funds would be available for distribution to unsecured creditors, according to the filing signed by the company’s chief financial officer, Scott Henry.

Kasowitz, Benson, Torres & Friedman LLP is the law firm that filed the petition.

Borders has struggled with cash levels since at least 2008, when it ran short of money and was forced to borrow from Pershing, its largest shareholder at the time. After missing a deadline to find a buyer, the company issued 5.15 million warrants to Pershing Square, the hedge fund run by William Ackman, making the fund the bookseller’s largest investor.

Borders borrowed $42.5 million from Pershing to remodel stores and upgrade technology to compete with Barnes & Noble Inc., the largest bookseller in the U.S., and Amazon.com. Cost- savings measures have been implemented over the past year.

In January 2010, Borders announced it would close some of its 513 bookstores in the U.S. and cut 11 percent of staff at its headquarters and eliminate 76 other jobs. CEO Ron Marshall resigned after a year on the job. Michael Edwards was put in a role as interim CEO.

Borders delayed payments to publishers in December as part of a plan to restructure financing arrangements with vendors. The stock lost more than a fifth of its market value, its biggest drop in two years, after the announcement.

Kmart Corp. acquired Borders in 1992, then a chain of about 20 stores founded by Tom and Louis Borders, for about $190 million and combined the retailer with its Waldenbooks unit.

In 1995, Kmart renamed the unit Borders Group Inc. and spun it off in an initial public offering. The new public company, with a market value of about $500 million, had more than 1,000 locations under the Borders, Waldenbooks and Planet Music brands and generated $1.5 billion in revenue.

Borders then dotted the U.S. with book superstores that proved to be more profitable than its mall-based Waldenbooks locations. The superstore unit grew to 200 by 1996, doubled by 2002 and peaked at more than 560.

“They over-expanded and built up some debt on their balance sheet,” said Souers, who has covered Borders for six years. “There was also less control to those businesses.”

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  • not surprised they closed the downtown Indy location
    It was probably a high-rent location for Borders, just like the Michigan Ave. location was in Chicago(which closed in Jan. '11, barely before their bankruptcy filing), or the Broad St. location in Philadelphia that was only added to the closing store list last month. It's sad, but that's the nature of when retail chains try to renegotiate store leases, and a company files for bankruptcy protection....
  • Family Experience
    We're a high tech family, but we still read plenty of books! My family visits Noblesville and Castleton stores on a regular basis. Its a fantastic family bonding experience. The service is always good or great. Borders is unique, a great fit for Indy ...a safe, comfortable, meaningful family hang-out. We hope you make it Borders.
  • E-Books
    I think there are an awfully lot of readers out there who,like myself,enjoy the convenience and economomic advantage of downloading ebooks at any hour of the day onto a paperbook-sized electronic reader that can hold hundreds of books. It's not a substitute for browsing through hardback books or magazines "fresh off the press" while relaxing with a cuppa coffee and perhaps perusing the pages of books you'd never consider buying but are curious about anyway, but it's certainly a nice experience
    in itself. I love my Kindle as well as my audiobooks downloaded on my iPod or iPhone, but I hope there are enough others out there
    who will keep the big retail Borders and B&N in business because they are an institution of their own.
  • THEY GOT BORING
    The Borders debacle is due to the fact that they lost their personality. They were run by eclectic funky types. They became BORING, when they used to be the place to go into. The kids behind the counter spoke in mumbled, robotic, monotones, and were irritated that you showed up and wanted cup of coffee. Used to be the music was folksy, or free entertainment, then one day they went to hospital quiet. Basically they didnt understand who they were. BandN was for the nerds, Borders was for the artistic eclectic. Somehow they hired in a bunch of no personality people and got rid of anyone who made noise in the coffee shop. I will miss them.
  • Technology gone awry
    Does anyone besides me think that the use of e-readers in the Carmel area may have caused the downfall of the Carmel store?
    • River Crossing store
      River Crossing better stay open if I am going to buy books in Borders stores rather than on-line. I live near Broad Ripple and I avoid Castleton like the plague and wouldn't go there for a book. BR has a nice independent bookstore, Big Hat books. I think having one like this is a miracle in this economy and these times.
    • They had to close Carmel
      River Crossing appears to do much more business than Carmel. It is in a retail and dining hub. Whenever I've visited the Carmel store, it has been empty.
    • Hate to see this only big bookstore leave downtown
      Maybe a books-a-million could take the space. Or, going another direction, a CB2...
    • Of course
      Yes they were going to close the downtown store. With the bankruptcy they are able to break their lease, an they have wanting to close the downtown store for more than a year.
    • So sad for Downtown
      The Downtown store is the only one I frequent for books for the family. It makes life so much easier for school etc since I can on lunch downtown. Now I will have to use on line or drive some where at $3+ a gallon. It is to bad they don't close one the Keystone Crossing store or Castleton. Let the Urban dewellers have books....
    • Underperforming stores
      It seems strange to me that they're leaving the River Crossing and Castleton stores both open when they are so close together. Then again the Carmel store is about as close to the River Crossing store too. It seems like if they closed River Crossing, Carmel and Castleton would both do better.
      • Remaining stores
        Not sure how the remaining stores will do, have noticed the past few months that they do not seem the carry the amount of inventory as in the past.
      • Carmel
        Not to mention that Borders store in Carmel is yet another in a long list of store closings in that area!
      • Downtown
        Hate to see this location close. Not surprised they kept the Hamilton Town Center location open but this store needs a real overhaul. I had a very difficult time trying to locate a book even using their terminal. After searching for a sales associate for over 5 minutes, I found one who are helpful but admitted that their offerings are slim. Can't see them surviving too long unless they drastically reinvent themselves.
        • Downtown
          I'll be sad to see this store close, but I highly doubt it would stay empty for long.....this is one of the busiest downtown corners.
        • Downtown and Carmel on List
          Downtown and Carmel Stores on List of Closures
        • Downtown!
          I hope they keep the downtown store, It means so much to the liveability of the core! Didn't mean to ryhme.....

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