Capital Markets

Borders Forced to Issue Warrants to Hedge Fund

With no buyer in sight, the bookseller issues warrants to purchase more than 5 million shares to its biggest investor.
Stephen TaubOctober 2, 2008

Borders Group, which has been unsuccessfully searching for a buyer, agreed to issue warrants to hedge fund Pershing Square Capital Management LP, because the bookstore chain couldn’t find a willing acquirer by its Wednesday’s deadline, according to Bloomberg. As a result, if Borders does find a buyer, Pershing Square — the bookseller’s largest shareholder that has been pushing the company to find a partner — will benefit from selling its holdings.

On Wednesday, Pershing Square received warrants to purchase an additional 5.15 million shares of the company’s common stock exercisable at $7.00. The warrants are exercisable until Oct. 9, 2014. The hedge fund currently owns 20.1 million shares of the company, or nearly 29 percent of outstanding stock, reported the Associated Press. Borders stock price closed at $6.54 on Wednesday.

In March, Pershing Square agreed to provide the bookseller with a senior secured term loan facility for up to $42.5 million, and to make an offer to purchase — at the option of the company — some foreign businesses for $125,000,000. In addition, Borders would grant Pershing Square 14.7 million warrants. The warrant agreement was part of a larger restructuring plan that included exploring a merger deal.

Earlier this year, Barnes & Noble confirmed that it was considering making a bid to buy Borders. But a potential deal seems to be off the table now. William Ackman, who heads up Pershing Square, has suggested that Borders approach online retailer Amazon.com Inc. for a possible deal, according to the AP.