By Mike Spector and Jeffery A. Trachtenberg
Borders Group Inc. inched closer to liquidation Sunday after a bidding deadline passed without offers that would keep the U.S.'s second-largest bookstore chain in business, said people familiar with the matter.
Bids for Borders were due at 5:00 p.m. EDT Sunday ahead of a bankruptcy-court auction scheduled for Tuesday.
Still, Borders is likely to entertain offers right up until the scheduled auction in the hopes a white knight will emerge to save the chain.
By late Sunday, Borders was in discussions with Books-A-Million Inc., a bookstore chain based in Birmingham, Ala., on some kind of potential deal, said people familiar with the matter. It remained unclear whether Books-A-Million would be in a position to save all of what remains of Borders, and fluid discussions were under way with other parties, too, one of the people said. Books-A-Million's 2011 annual report said it operates 231 stores in 23 states and the District of Columbia and sells on the Internet. Books-A-Million couldn't be reached.
The dearth of bids to keep the company running increases the odds that Borders, which employs nearly 11,000 people, will be sold to a group of liquidators this week, putting the chain out of business for good.
If a new bidder fails to emerge in the next 48 hours or so, a new wave of vacancies would hit big-box stores in malls and shopping centers across the U.S. About 400 Borders stores remain, including about 259 superstores. Their closure could hasten the decline in sales of hardcovers and paperbacks and could boost sales of electronic books at Amazon.com Inc. and other online retailers. Barnes & Noble Inc. would be left as the sole remaining national book chain.
Borders Group President Mike Edwards said Sunday in an interview that the retailer had received some inquiries over the weekend. "Hopefully we'll see a positive outcome," he said.
Borders's best chance to survive fell apart last week, when negotiations with private-equity investor Jahm Najafi to buy the company collapsed. A subsidiary of Mr. Najafi's Direct Brands, a company that markets books and DVDs straight to consumers, was set to be the opening bidder in Tuesday's auction, offering $215 million and an assumption of $220 million in liabilities.
But creditors, including publishers and landlords, objected to the bid's structure, saying it would allow Mr. Najafi to liquidate Borders after he bought the company. The creditors argued that a backup bid from liquidators led by Hilco Merchant Resources and Gordon Brothers Group that could pay them between $252 million and $284 million made for a better deal.
In an interview Sunday afternoon, Mr. Najafi said his company wouldn't bid again for Borders. "We have reluctantly made a decision not to participate in the auction," said Mr. Najafi, who heads Phoenix-based Najafi Cos.
Mr. Najafi, whose Direct Brands unit owns Book of the Month Club, had been willing to relinquish the clause in his offer allowing him to liquidate Borders to appease creditors. But in exchange, he wanted large publishers to commit to shipping merchandise to Borders on normal terms that allowed bills to be paid later instead of right away. Mr. Najafi wanted those terms so he would have a level playing field with rivals such as Barnes & Noble and Amazon.
At least one publisher wouldn't budge, and Mr. Najafi declined to alter his terms. Borders then pivoted to naming liquidators the opening bidders in the chain's auction.
Separately, Gordon Brothers Group named a new chief executive, Gary Talarico. Mr. Talarico said in an email that he wouldn't rule out making a run at Borders's intellectual property—its brand name, website, and customer lists, among other things.