Activist investor Pershing Square Capital Management LP has agreed to buy Borders Group Inc.'s international units, but that deal may be far from done. The insurgent revised Monday its financing agreement with Borders in a deal that is more favorable to the bookseller. In it, Pershing Square will pay $135 million for the bookstore's international chain, up from $125 million. The revised deal also includes a lower interest rate of 9.8% on a $42.5 million senior secured term loan offered by the activist fund.
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But even with the transaction to sell the international division to Pershing Square, Borders has retained the right to continue looking for strategic buyers for these units. "As previously stated, Borders Group believes its international subsidiaries are worth substantially more than the amended backstop purchase offer price and the company has retained the right to continue its ongoing strategic alternatives process for these businesses," Borders stated in its release Monday.
A sale of the international units to a strategic buyer, particularly if one pays a significant amount, is likely an outcome Pershing Square would prefer over its agreed-to deal. In fact, activists are known to strike deals or make bids for companies or divisions simply to put them "in play" so that other strategic buyers come in and take them over. That may just be what Pershing Square is looking for here.
Pershing Square has an 18% Borders stake, and one of the fund's partners, Richard T. Mcguire III, was elected to the company's board on Jan. 17.
Other activist-types have congregated at Borders including Kenneth Shubin Stein of Spencer Capital Management LLC and Glenn Tongue, a value investor at T2 Partners Group LLC, which reported in February in a Schedule 13D SEC filing that they owned a 4.7% Borders stake.
Borders Group has hired J.P. Morgan Securities Inc. and Merrill Lynch & Co. to help explore strategic alternatives including a sale of all or parts of the company. - Ron Orol
See press release from Borders
See March 20 story from TheDeal.com
See March 21 Schedule 13D filing from SEC Edgar
See Spencer/T2 Schedule 13D filing from SEC Edgar
See SAC Capital Advisors Schedule 13G filing from SEC Edgar
Ron Orol is a Washington-based reporter for The Deal and author of Extreme Value Hedging: How Activist Hedge Fund Managers Are Taking on the World.
