Borders on the Rocks

March 21, 2008 | 2

After spending a lot of time over the last week discussing Borders’ new strategy to display more books face out (and thereby reduce the number of books a typical store carries), it turns out that the whole discussion may have been moot. The struggling chain had a need for more money to “remodel stores and pay for new technology,” but, thanks to the rocky climate on Wall Street, Borders was initially unable to find a willing lender. Translation: without an infusion of cash, Borders was going to run out of money.

This left CEO George Jones with few options. Pershing Square, a hedge fund with investments in many large retailers and Border’s largest shareholder, has agreed to “lend $42.5 million and to make an offer for some of [Borders’] international chains,” according to Bloomberg. The loan comes with a huge interest rate and comes with various provisions that give the fund ever larger control over the book chain’s fate. Borders has also said that it is now seeking a buyer and the company has suspended its dividend. This deal is something of a last resort for Borders, and the stock plunged nearly 30% on Friday, the biggest drop in the company’s history.

So what does this mean to Borders customers and employees? It’s still too early to know. the deal with Pershing staves off the possibility of Borders running out of money in the near future, and offers a life raft for the chain to get through the challenges brought on by the slowing economy. The path forward is tenuous at best; expect more developments in the coming months.

created The Millions and is its publisher. He and his family live in New Jersey.