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.
The fate of Borders Group Inc. hangs in the balance this weekend, with a Sunday deadline looming for the bookstore chain to either find a buyer or face liquidation.
A judge on Thursday said Borders could auction itself off with an opening bid from a group of liquidators, less than 24 hours after the bookseller's negotiations to sell itself to private-equity investor Jahm Najafi collapsed.
At a morning court hearing, Judge Martin Glenn of U.S. Bankruptcy Court in Manhattan approved procedures for an auction of Borders, which will take place Tuesday should any suitors emerge to challenge the liquidators' bid led by Hilco Merchant Resources and Gordon Brothers Group.
Borders, which employs nearly 11,000 people, will go out of business for good, absent a buyer emerging to keep the chain running.
"Borders remains focused on working with interested parties to develop a going-concern transaction," said Mike Edwards, Borders Group's president, in a statement. "We strongly believe in the value of Borders as an iconic brand with significant long-term potential in the publishing industry," he said, adding that the company appreciates efforts from publishers, landlords and customers to keep the chain alive.
Mr. Najafi's company declined comment.
The possibility remains that Mr. Najafi could make a new offer for the chain that would satisfy creditors. Any new bids are due by 5 p.m. Sunday, though Borders is likely to entertain offers that might save the company up until Tuesday's auction.
At Thursday's hearing, Borders said it hoped Mr. Najafi or other parties will come forward with a bid that would keep the company in business. A subsidiary of Mr. Najafi's Direct Brands offered $215 million for Borders's assets and would have assumed about $220 million in liabilities. But Borders late Wednesday pivoted to naming the liquidators as the so-called "stalking-horse" bidder after creditors had objected to Mr. Najafi's bid.
The creditors, including major publishers and landlords, argued Wednesday that the liquidators' bid would potentially pay them more. They complained that Mr. Najafi's bid gave him the option to liquidate the company after he bought Borders, a scenario in which creditors would fare worse. The creditors said the liquidators' bid already had the potential to pay them between $252 million and $284 million.
The creditors said they would support Mr. Najafi's bid if he dropped his option to liquidate the company. Mr. Najafi, in exchange, wanted guarantees from publishers that they would relax terms under which they ship Borders merchandise. Publishers had been demanding cash in advance before shipments.
Some major publishers agreed, but a couple still hadn't by late Wednesday afternoon, and Mr. Najafi signaled he wouldn't alter his deal terms, according to people familiar with the matter.
Andrew K. Glenn, a Borders lawyer at Kasowitz, Benson Torres & Friedman LLP, told Judge Glenn that Borders had engaged in "round-the-clock negotiations" with Mr. Najafi, to no avail.
"This has been a case with many twists and turns and the events of the last 24 hours are no exception," Mr. Glenn said. "Unfortunately, [Mr. Najafi] would not commit in time for this hearing."
Mr. Najafi released a statement late Wednesday saying his original offer, with the liquidation option, remained on the table but "was no longer supported by the deciding parties." Mr. Najafi said he remained willing to move forward if Borders chose to resume talks and negotiate his existing offer.
Dozens of landlords of Borders's 399 remaining stores objected to a tight timetable between the July 19 auction and a July 21 sale hearing, but Borders said it might try to break the sale hearing into different parts so parties would have more time to decide whether to object. Judge Glenn said he liked that idea.
The tricky part for Borders would be if a bidder emerges that wants to keep Borders's stores running; that bidder would have to decide how it will treat the leases on the remaining stores.
Borders Group Inc. stood on the brink of liquidation after a recent offer for the bookstore chain from a private-equity investor fell apart late Wednesday.
Borders, which employs nearly 11,000 people, designated a group of liquidators as the opening bidders in a looming bankruptcy-court auction amid difficulties getting publishers to relax terms under which they ship merchandise to the U.S.'s second-largest bookstore chain, said people familiar with the matter.
The development raises the prospect that Borders will soon close all its remaining 399 stores and go out of business. No other suitors have so far emerged for Borders ahead of a Sunday bidding deadline.
Borders's deal with the investor, Jahm Najafi, unraveled Wednesday after publishers and landlords owed money from the company complained that his bid would allow him to liquidate the bookstore chain after buying the business.
Mr. Najafi had offered $215 million for Borders, plus an assumption of $220 million in liabilities. The terms allowed him to operate the chain as a going concern or to liquidate the business. A creditors committee said an offer of at least $252 million from a group of liquidators made for a better deal.
Creditors were essentially concerned that Mr. Najafi would pay $215 million in cash for Borders and then liquidate the chain. With that potential scenario lurking, the creditors preferred Borders sell itself to a group of liquidators in a deal they believed would pay them more money ranging between $252 million and $284 million.
They also objected to a $6.5 million break-up fee Mr. Najafi was set to receive if another bidder topped his offer.
Mr. Najafi was willing to drop his liquidation option if publishers agreed to grant him normal trade terms, according to people familiar with the matter.
Some major publishers agreed, but by late Wednesday afternoon a couple hadn't, the people said. At that point, Mr. Najafi signaled he wouldn't alter his terms.
Time was running short, with Borders set to address a bankruptcy judge early Thursday to seek approval of Mr. Najafi's bid and procedures for an auction next week. The bookstore chain pivoted to anointing liquidators as the opening bidders in the auction, set for Tuesday.
In a letter to employees Wednesday, Borders President Mike Edwards said that Mr. Najafi had withdrawn his bid and that liquidators were now circling the company. He told employees he remained hopeful other suitors would emerge to keep Borders in business before next week's auction.
In a statement, Mr. Najafi denied he had withdrawn his bid and said the offer was "no longer supported by the deciding parties." The liquidation bid, his statement said, was "in contrast to what we had envisioned for the future of Borders." Mr. Najafi said he remained willing to move forward with a deal "should the deciding parties instead choose to work with us and our existing offer."
Borders filed for bankruptcy protection in February and has since been bleeding cash and closed more than a third of its stores. Amid mounting losses, the bookstore chain put itself up for sale in a last-ditch attempt to survive.
