July 18 (Bloomberg) -- Borders Group Inc., the bankrupt bookstore chain, faces a sale to liquidators after Najafi Cos. declined to bid.
“We will not, reluctantly,” be making a bid, said Chief Executive Officer Jahm Najafi in an e-mail.
Najafi had made an offer that would have kept some of the retailer’s remaining 400 stores open, which Borders wanted to use as the leading bid in a July 19 auction. That fell apart last week after Najafi declined to abandon the option to liquidate stores.
Liquidators led by Hilco Merchant Resources and Gordon Brothers Retail Partners LLC were made the opening bidders for the auction. The deadline for bids passed yesterday without any offers.
Mary Davis, a spokeswoman for Borders, declined to comment.
Borders is still required to get final approval of any transaction from U.S. Bankruptcy Judge Martin Glenn in Manhattan. On July 14, Glenn approved a procedure to auction Borders’ assets that made a group of liquidators, rather than Najafi’s 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.
Glenn’s ruling last week came after a last-minute reversal for Borders, the second-largest bookstore chain behind Barnes & Noble. After negotiating all night before the hearing, 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.
Najafi didn’t intend to liquidate the company, and couldn’t remove the clause because it was still trying to bargain with publishers, who have refused to return to normal financial terms, a person familiar with the negotiations said, speaking on condition of anonymity.
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 and Gordon Brothers.
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 Amazon.com Inc.’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).