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Borders IP sale hearing delayed by privacy concerns

by Jamie Mason  |  Published September 23, 2011 at 4:46 PM
Liquidating book retailer Borders Group Inc. is set to return to court Monday, Sept. 26, for a further hearing on the sale of its intellectual property, which has been stalled by privacy concerns.

According to a source involved in the case, who asked not to be named, Judge Martin Glenn of the U.S. Bankruptcy Court for the Southern District of New York in Manhattan continued the IP sale hearing from Thursday, Sept. 22.

Glenn adjourned the hearing because of questions he raised regarding the sale of the former book retailer's IP to five different buyers for a total of $15.77 million.

Barnes & Noble Inc. had the winning $13.9 million bid for the bulk of Border's IP, while its license marks in Australia and New Zealand will be sold to Pearson Australia Group Pty. Ltd. for $450,000.

Popular Holdings Ltd. won Border's Singapore license marks with a $100,000 bid, while Berjaya Books Sdn Bhd will pay $825,000 for its Malaysian marks. Al Maya International Ltd. will buy the company's license marks for Persian Gulf countries for $500,000, court papers said.

The judge asked the parties to come back to him with responses to his questions, the source said.

According to the source, the questions arise from a Wednesday report from consumer privacy ombudsman Michael St. Patrick Baxter, a partner at Covington & Burling LLP.

The report found that Borders couldn't transfer any consumer's purchase history information for certain audiovisual materials to Barnes & Noble through the sale unless Borders obtained the written consent of the consumer.

Baxter's 49-page report, however, said that Borders could transfer personally identifiable information for other products that was collected after May 27, 2008, through the sale. For data collected before then on the other products, Borders also would need the consent of consumers.

According to a response filed by Barnes & Noble, the transaction "does not entail the sale of the Borders customer information as a standalone asset, but rather the customer information is to be sold as a larger group of assets, including trademarks and online content," and therefore should be approved.

Barnes & Noble said that Borders withheld privacy issues and concerns from the buyers until after the Sept. 14 auction, "although they were known to the debtors."

According to Barnes & Noble's response, it has no interest in having a dispute with Border's consumer privacy ombudsman and said that implementing all of the recommendations contained in his report "would destroy the value of the transaction from Barnes & Noble's perspective."

PC Mall Inc. began the Sept. 14 auction for the IP of the Ann Arbor, Mich., book retailer with a $3.5 million bid.

Since PC Mall didn't win the auction, it will receive a $150,000 breakup fee, subject to bankruptcy court approval.

Streambank LLC marketed the IP for sale.

A consortium of liquidators -- Hilco Merchant Resources LLC, SB Capital Group LLC, Tiger Capital Group LLC, Gordon Brothers Retail Partners LLC and Great American Group LLC -- conducted going-out-of-business sales at Borders' stores.

Phoenix private equity firm Najafi Cos. withdrew its $450 million proposed going-concern bid for Borders on the eve of a July 14 bidding procedures hearing after Najafi affiliate BB Brands LLC refused to eliminate a provision in the bid agreement that would have allowed it to liquidate the company after purchasing it.

Borders owned a chain of 642 mall-based and freestanding stores under the Borders, Waldenbooks, Borders Express and Borders Outlet names when it filed for bankruptcy protection on Feb. 16 because of low consumer spending, tight liquidity, issues with its suppliers and a $168.2 million net loss for 2010 as of Dec. 25.

All but three of Borders' locations were in the U.S. The other three were in Puerto Rico. Borders had about 6,100 employees.

Andrew Glenn, David Rosner, Jeffrey Gleit and David Friedman of Kasowitz Benson Torres & Friedman LLP are debtor counsel.

Bruce Buechler at Lowenstein Sandler PC represents the official committee of unsecured creditors.

Paul Zumbro of Cravath, Swaine & Moore LLP is counsel to Barnes & Noble.

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Tags: auction | bankruptcy | Borders Group Inc. | M&A | U.S. Bankruptcy Court for the Southern District of New York

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