Borders to Seek Court Approval for Liquidators’ Bid Over Offer From Najafi

Borders Group Inc., the bankrupt bookstore chain, will start its asset auction with an offer from liquidators after failing to persuade a private-equity firm to keep the company running.

U.S. Bankruptcy Judge Martin Glenn in Manhattan today approved a procedure to auction Borders’ assets that makes a group of liquidators, rather than Najafi Cos.’ BB Brands, the so-called stalking-horse bidder. Such bids, which provide protections for interested parties who do work valuing assets, become default purchase agreements if no other bids are made.

Borders remains hopeful it will be able to stay in business, company lawyer Andrew Glenn, no relation to the judge, said in court today. Najafi has said it may bid at the auction and Borders has received other inquiries, he said, without saying how many.

Barnes & Noble Inc. (BKS) “gave us an offer for certain assets,” Andrew Glenn said. “They could come in and team with the liquidators,” he said.

Mary Ellen Keating, a spokeswoman for New York-based Barnes & Noble, declined to comment in an e-mail.

Judge Glenn’s ruling came after a last-minute reversal for Borders, the second-largest bookstore chain after Barnes & Noble. After negotiating all through last night, creditors and Najafi failed to reach an agreement that would have forced the Phoenix-based firm to keep the company operating as a going concern, Borders’ lawyers said.

Online Sales

“With few companies willing to bid on Borders during the bankruptcy, markets agree that the bookstore industry is shifting into a more technology driven environment with online sales and ereaders,” Mary Gotaas, an analyst at Santa Monica, California-based market-research firm IBISWorld, said in an e- mailed statement.

Sales at bookstores are expected to continue declining as more consumers shop over the Web and shift to e-books, Gotaas said in a March research note. By 2016, annual revenue in the book-selling industry is expected to fall to $18.2 billion, from $19.2 billion this year, she said.

Borders has throughout its Chapter 11 case pursued a “dual-track process” so it could proceed with a sale to liquidators if it isn’t acquired as a going concern, according to court filings. The liquidators include Hilco Merchant Resources and Gordon Brothers Retail Partners LLC.

Intellectual Property

If the company is going to liquidate its remaining 400 stores, creditors would prefer to have it done under the control of the company, with its chosen liquidators, creditors’ lawyer Bruce Buechler said. Any valuable assets, such as intellectual property and real estate, could be sold separately, possibly bringing in more money for creditors, he said.

The agreement with liquidators is based on an estimated $350 million to $395 million cost value of all Borders merchandise, according to court papers. An auction is still set to test for higher offers. If there isn’t enough interest to conduct an auction, Borders will notify the bankruptcy court by July 18, according to court papers.

Judge Glenn said that if Borders gets a bid to keep the company running, the court will hold a special “bifurcated hearing” to evaluate its merits over a liquidation.

“Everybody will get their day in court, or night in court,” the judge said. ‘We will do everything necessary.”

A final deal is scheduled to be approved by the court at a hearing on July 21.

Creditor Objections

A committee of Borders creditors yesterday objected to the sale process that the company had intended to seek court approval for today. Creditors disputed Borders’ claim that the offer from the Najafi unit was the highest and best so far.

Borders is still seeking to resolve objections from landlords who said the sale process doesn’t give them information about whether the company will keep or reject leases. The company can’t give landlords assurances until it knows the outcome of the auction, Andrew Glenn said.

“We’re shooting in the dark because we don’t have a going- concern bid,” he said.

Borders, founded 40 years ago as a single used-book store, had 642 stores in February when it sought court protection. It closed 237 stores during the Chapter 11 case, leaving 405 operating.

The book chain, which once operated more than 1,000 stores, lost business as customers switched to e-readers such as Inc. (AMZN)’s Kindle , introduced in 2007. Barnes & Noble invested in its own Nook device to attract customers.

The case is In re Borders Group Inc., 11-10614, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Tiffany Kary in New York at

To contact the editor responsible for this story: John Pickering at

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