Borders files for Chapter 11

Posted on February 16, 2011

The bookselling empire created by Tom and Louis Borders in Ann Arbor has crumbled as the company filed for Chapter 11 bankruptcy today.

Borders Group Inc. (NYSE:BGP) has been troubled for the last few years, but problems intensified through the economic downturn as the company saw revenue drop and losses mount.

The company filed for Chapter 11 in U.S. Bankruptcy Court in Manhattan, declaring assets of $1.28 billion and liabilities of $1.29 billion as of Dec. 25.

Recent media reports citing unidentified sources say the company may close 150 to 200 of its nearly 650 stores.

There are 28 Borders locations in metro Detroit, including seven of the Borders Express stores, which are short-term leases. There are also four small stores in Detroit Metropolitan Airport and one Waldenbooks location.

Since 2006, the company’s revenue has dropped along with net income.

The company’s 2006 revenue of $4 billion marked the last year-over-year increase. Since then, revenue has dropped every year with $2.8 billion in 2010.

Net income turned to net losses after the company’s last profitable year in 2007. It recorded a $400 million loss in 2008, a $16.2 million loss in 2009 and a $126.4 million loss in 2010.

And in recent months, Borders has gasped for air.

At the beginning of January, it announced that it was not going to pay some of its suppliers and landlords, prompting some book publishers to stop shipments to bookstores.

The non-payments continued with the February announcement that January bills would not be paid as well.

While the company has been in negotiations with GE Capital for a $550 million line of credit, the deal requires publishers and landlords to convert the delayed payments to interest-bearing debt.

Meanwhile, investors have reacted.

Borders has been notified by New York Stock Exchange that it will be delisted because the stock price has been below $1 for more than 30 days. The company was given a six-month grace period that expires in August.

Borders was founded in 1971 in Ann Arbor.

The company picked up steam before being acquired by then Troy-based Kmart Corp. in 1992. The move was part of then CEO Joe Antonini’s so-called specialty retailer division.

Along with Builders Square Inc., Sports Authority Inc. and OfficeMax Inc., he purchased the 21-store Borders chain. The company was purchased for $125 million.

Under Kmart’s ownership, Borders was in a well-funded growth mode. It grew to 88 Borders superstores and 1,050 Waldenbooks stores by 1995, with 37 more stores in the pipeline.

And after Borders went public in 1995, its expansion continued, though some analysts have said the expansion was too much, too fast.

Borders has been widely criticized for its digital strategies.

In 1998, Borders launched an e-commerce site — three years after launched and one year after Barnes & Noble launched its site.

But after just three years of trying to make a go of online sales, Borders gave up. In 2001, it entered a joint venture with to develop a website to be operated by Amazon with a portion of revenue to be shared with Borders.

It wasn’t until 2008 that Borders took over its online sales operation again. The seven years could have been used to develop a web strategy to work with the brick-and-mortar retail strategy, analysts have said.

In the last two years, the company has been criticized for being slow to develop an e-reader strategy while its competitors such as Barnes & Noble and capture market share.

Also crippling Borders is lack of executive firepower as the company started 2011 with five resignations.

Thomas Carney, executive vice president, secretary and general counsel, resigned on Jan. 2, and D. Scott Laverty, senior vice president and chief information officer, resigned the following day.

In addition, the firm’s vice president of real estate, Tony Grant; the senior vice president of marketing, Bill Dandy; and the senior vice president of business development, Larry Norton, were eliminated as part of a restructuring, Davis said.

With Carney and Laverty’s resignations, the remaining three executives on the management portion of the company’s website have been appointed in the past year.

The CEO, Bennett Lebow, was named in June as part of taking the largest ownership stake in the company, making the previous CEO, Mike Edwards, president and CEO of Borders Group subsidiary Borders Inc.

Edwards, however, only had been CEO since Ron Marshall left the post in January 2010.

Another high-level resignation came in August when CFO Mark Bierley resigned. He was replaced by Scott Henry.

The company’s chief accounting officer, Glen Tomaszewski, was named interim CFO in August then later moved to his current position.

Also in flux has been the board of directors, with five members resigning in summer 2009.

By Dan Duggin, Crain’s Detroit