March 20 (Bloomberg) -- Borders Group Inc., the second- largest U.S. bookstore chain, put itself up for sale and halted its dividend as Chief Executive Officer George Jones said the retailer was unable to borrow money to remodel stores and pay for new technology.

The bookseller dropped the most in New York trading since it went public almost 13 years ago. Borders' largest shareholder, Pershing Square Capital Management LP, the hedge fund run by William Ackman, agreed to lend $42.5 million and to make an offer for some of its international chains. The Ann Arbor, Michigan-based company also reported fourth-quarter profit that rose less than analysts estimated.

Borders said lenders' increasing reluctance to give out credit made it almost impossible to borrow. Most of the company's financing options were ``prohibitively expensive or entirely unavailable,'' Jones said today in a statement. It will take longer than originally planned for the company to reach targets set in March, he said.

Borders, whose market share is being eroded by Amazon.com Inc. and Wal-Mart Stores Inc., has lost 76 percent of its value on the New York Stock Exchange in the past 12 months.

The retailer needed the money to satisfy vendors that it could meet its financial commitments, Jones said in an interview. Bank of America Corp. and JPMorgan Chase & Co., Borders' main banks, were either charging too much for loans or couldn't get the money to the retailer fast enough, he said.

`Giving Up'

Seeking a buyer ``does kind of sound a bit like giving up,'' said Colin Symons, the chief investment officer at Symons Capital Management Inc. in Pittsburgh.

``We have a number of people who'd be interested in either all or part of the company,'' Jones said today in a Bloomberg television interview.

Borders plunged $2.03, or 29 percent, to $5.07 at 4:01 p.m. in New York Stock Exchange composite trading, the biggest drop since the company's initial share sale in 1995.

Barnes & Noble Inc., the largest U.S. bookstore chain, will take a ``good look'' at Borders, Chief Operating Officer Mitchell Klipper said today in a conference call with investors.

Barnes & Noble jumped 8.1 percent on the New York Stock Exchange after forecasting first-quarter profit and boosting its dividend for the first time. The retailer has dropped 12 percent this year.

Amazon.com, the world's largest Internet retailer, reported in January that fourth-quarter profit more than doubled as the bookseller sold more Christmas electronics gifts, video games and toys online.

Credit Crunch

Borders said ``uncertainty in the economic environment'' and higher borrowing costs were the main reasons the retailer is putting itself up for sale. Banks are tightening their lending standards amid concern over losses from the subprime mortgage crisis, making it harder for corporations to borrow.

``The company determined that additional capital was required to execute our operating plan,'' Jones said in the statement. ``The current credit environment has made many of these alternatives prohibitively expensive or entirely unavailable.''

Without the funding from Pershing Square, which owns 18 percent of Borders' shares, ``liquidity issues may otherwise have arisen in the next few months,'' he said.

Ackman, who also holds an 11 percent stake in Barnes & Noble, may buy Borders' Paperchase unit in Australia and 17 percent of its U.K. division for $125 million, Borders said. Pershing also has warrants to buy 20 percent the bookseller's shares. A spokesman for Ackman didn't have an immediate comment.

The company hired J.P. Morgan Securities Inc. and Merrill Lynch & Co. to explore strategic alternatives. That process will include ``a wide range of alternatives including the sale of the company,'' Borders said.

Declining Profit

The bookstore chain reported profit of $64.7 million, or $1.10 a share, for the three months ended Feb. 2, compared with a loss of $73.6 million, or $1.25 a share, a year earlier. Five analysts forecast average profit of $1.41 a share in a Bloomberg survey.

Sales at domestic Borders stores open at least a year rose 2.1 percent during the fourth quarter, and revenue increased 9.3 percent on that basis in the international unit, driven by outlets in Asia Pacific.

The company had a post-tax loss of $7 million in the fourth quarter linked to the sale of its U.K. and Irish bookstore unit.

Financial targets for 2009 that were set in March 2007 ``remain attainable,'' though progress will be slower in the ``current economic environment,'' meaning the company will reach the goals later than expected, Jones said.

Borders said last March that the operating margin, or consolidated operating profit as a percentage of sales, should reach 5 to 6 percent by 2009, up from 1.8 percent then, as sales at existing stores climb by ``low to mid-single digits.''

Borders fell 33 percent in New York trading this year before today, compared with declines of 19 percent by Barnes & Noble and 24 percent by Amazon.com. Borders had debt of $554 million at the end of the year, compared with $547.8 million in 2006.

To contact the reporters on this story: Joseph Galante in San Francisco at jgalante3@bloomberg.net; Carol Wolf in Cleveland at cwolf@bloomberg.net

Last Updated: March 20, 2008 18:08 EDT