Geoff Gannon February 16, 2011

Borders (BGP) Files for Bankruptcy

The second-largest book store chain in the United States, Borders (BGP)filed for bankruptcy today.

You may remember my misadventures in the stock of Borders’ biggerst competitor, Barnes & Noble (BKS).

I bought Barnes & Noble shares at $15.36 a share in August. I sold them at $14.82. In the meantime, I received $0.50 a share in dividends. The stock is now at just under $19 a share. Up 28% since I sold it. Given the announcement that Borders will close 30% of its stores in just a few weeks – well, Barnes & Noble will pick up a couple points of market share almost overnight.

I’d be surprised if Barnes & Noble’s shares didn’t close higher today. The bankruptcy was expected. But the combination of the store closing and the New York Times saying that Bill Ackman is still interested in a Barnes & Noble and Borders merger if and only if Borders can close enough of its worst stores in bankruptcy was not necessarily expected.

So, overall, selling Barnes & Noble was not my proudest hour.

As you probably know, they spent too much on the Color Nook for my tastes. They didn’t suspend the dividend. And they did defeat the proxy battle waged by Ron Burkle. They were also slow walking the process of getting bids for the entire company.

That made me unable to evaluate their future and quite able to know their cash flow situation would not be as good as it should have been. The stores, remember, still throw off a lot of free cash flow. It was the Nook that sucked it up.

Obviously, Barnes & Noble is the big winner today.

Borders’s bankruptcy filing is shown below.

Page 10 of the filing shows the company’s top creditors. They’re publishers. Here’s what Borders owes them:

  1. Penguin – $41,118,914
  2. Hachette – $36,879,656
  3. Simon & Schuster – $33,757,444
  4. Random House – $33,461,061
  5. Harper Collins – $25,793,450
  6. Macmillan – $11,434,306
  7. John Wiley – $11,191,435

Those are just the top 7 creditors. After that, it’s distributors, coffee/cafe, etc.

There are a couple more large publishers way down the list. McGraw-Hill is owed $3,093,871. Pearson is owed $2,784,766.

Borders Petition

Talk to Geoff About Borders Filing for Bankruptcy