This Stock's Heading to Zero

Rumor has it that Borders Group (NYSE: BGP  ) may imminently admit defeat by declaring bankruptcy. The company's long, melodramatic, almost vaudevillian death scene could finally issue its last wheeze.

Late last week, The Wall Street Journal cited the notorious "people familiar with the matter," who claimed that the bookseller could file for bankruptcy early this week. That's too bad for folks who have rolled the dice to invest in the penny stock, grasping for glimmers of hope in the form of optimistic conjecture of a deal with Barnes & Noble (NYSE: BKS  ) , or the idea it could a lifeline from General Electric's (NYSE: GE  ) GE Capital arm could keep from going down.

I'm frankly amazed to see how long a company this beleaguered and seemingly doomed can keep on staggering along when it has friends in high places. Borders' major shareholder, Bill Ackman of Pershing Square Capital Management, has saved Borders' bacon many times. But now, perhaps, he may have bigger fish to fry, such as his recent J.C. Penney (NYSE: JCP  ) stake.

As Borders' fate hangs in the balance, bricks-and-mortar book superstores in general may simply be an anachronism at this point. Borders is expected to seek "debtor-in-possession financing," which would help it continue to operate in bankruptcy. However, the writing's on the wall -- both for current investors, who would be left with zero, and for Borders' long-term future.

For those tempted to see Borders' fate as a sign of the death of books and the American reader, don't be too alarmed. The resounding success of Amazon.com's (Nasdaq: AMZN  ) Kindle e-reader simply indicates that publishing is evolving, not dying. E-books could rekindle Americans' love affair with reading, after all.

That won't save Borders, though. It looks more likely than ever that this company's story may end up on the History shelf, subcategorized under "Failure."

Amazon.com is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (10) | Recommend This Article (9)

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  • Report this Comment On February 14, 2011, at 3:58 PM, mountain8 wrote:

    Have you ever just stood in a bookstore? It has a feel and smell that can't be duplicated. And it has one thing that Kindle et al. can't duplicate... window shopping. Seems to me all these readers are wonderful if you KNOW what you want to read. "The Three Musketeers" is a breeze to find. Shakespear's easy also though you may have to scroll down to get the version and play you want. But what about that book you only found out about by walking the aisles of your friendly bookstore.

    Consider you would like to buy a book but you don't have the slightest clue on which one. You just want to read something. Lets scroll down Kindals list of (what?) 4 million books one at a time, find a few hundred that sound like good titles, then read the 'back of the book' and finally, after several months, pick one to read.

    Readers do get hooked on certain authors like Tom Clancy but that's not the norm. Readers like to window shop, walk the isles, eye the fantastic covers, read the dust cover, and compare it to the other 99 you looked at. Then make up their minds.

    Kindle is for students. How could one find a book unless he wants to reread one he enjoyed before, he had it assigned to read at school, or he saw it on Oprah. Go ahead, right now, pick one book and title you want to read. Where did you get the name???

    Borders and possibly other big name stores may well go out of business but for business reasons. Not just because of the input of miracle readers.

  • Report this Comment On February 14, 2011, at 4:20 PM, reetool wrote:

    Mountain8,

    I enjoyed your view, well said thank you...

  • Report this Comment On February 14, 2011, at 4:29 PM, TMFLomax wrote:

    Thanks for the thoughts. I said "bricks-and-mortar book superstores" being an anachronism in the article -- personally, I think the personal experience of small independent bookstores that can gear things towards specific clienteles or genres have a far better shot at long-term survival than the big superstore chains like Borders at this point.

  • Report this Comment On February 14, 2011, at 4:33 PM, bottomfisherman wrote:

    I have begun looking for a new venue for our Thursday night Chess Club that meets in the Cafe of the story soon formely to be known as Borders, B and N is to small but we still have several local coffee shops that are attractive that have not been forced out of busniss by Fivebucks. Still though like what someone wrote, I go into a bookstore to to a section and pick up books quickly browse them to see if I am interested then sit down to coffee with some of them and then buy one. Cannot do this online or using an e-reader. Thankfully near our Borders there is still an Ed McKays books, video games and movies all used and still will have a market. Just no place for us to sit and play chess.

  • Report this Comment On February 14, 2011, at 4:36 PM, DivingDan wrote:

    Though I love bookstores I haven't been in one since I got my Kindle. Yes, you can browse for books. Sorted by author, genre, etc. Also I download many free books off the internet that I would have never read if I had to pay for the book because of printing, shipping, stocking costs.

    Sorry but I haven't been a student for over 30 years and love my e-reader. Brick and mortar are the past and will slowly disappear.

  • Report this Comment On February 14, 2011, at 4:48 PM, bottomfisherman wrote:

    Can only browse title with Kindle not the book itself especially if like me you like books biographies and auto-biographies and books about historical events or historically based. With book in hand can skim to see if author did his research, knows his stuff, proper quotes and time frames etc. cannot do this by skimming titles. I should go over to the Ed McKay's near the Borders and ask if they are going to be moving to the soon to be former Borders!!!

  • Report this Comment On February 14, 2011, at 9:06 PM, nolatom wrote:

    I think Ackman may killed Borders rather than have save it many times over. A bankruptcy two or three years ago , and Borders may have been able to take the steps needed to become profitable again and face the challenges of a bricks and clicks future. Instead, Ackman kept them afloat, but they had to whittle staffing to the bare bone, their IT was horrible, and the merry-go-round of CEOs provided nothing.

    Ackman didn't want to acknowledge he made a bad choice and didn't want to make the probable substantial financial commitment it would have taken to make Borders an internet/ereader player to go with the bricks. He took the middle road, keep Zombie Borders alive all while constantly trying to badger BKS into buying it. Didn't work.

  • Report this Comment On February 15, 2011, at 5:25 AM, booksweread wrote:

    Well, I just used Border's 40% coupon to buy a brand new Cooking Light's Meals in Minutes from Borders Bookstore. With my additional 10% member discount, that was a deal that Amazon can't beat.

    I do everything on the internet and I have an i-phone, i-pad, a little Gateway netbook and also another Dell lap-top PC, all at the same time. I subscribed a couple magazines through ipad, and have a couple e-books that I barely read cause I just didn't like to read on the screen that much... I still prefer to read magazines and books in print.

    I go to Borders few times a week. I will feel extremely sad if Borders go out of business, mainly because I will not have a place to go and chill anymore. I can't get the same good feeling that Borders give me when i just visit an Amazon website...

    yes, there are free e-books to download, but holding them in hand and flipping through the pages are the feel-good experience that I enjoy with Borders. Besides,, the free ebooks are always that ones that are copy right expired classics, or something that I have no curiosity about or the urge to pick it up and flip it when I go to Borders. In Borders, I can however pick up all new releases and flip them, and check it out. Free ebooks don't let you do that. (they give you whatever pages they want to be free and tell you to pay for full download).. I controlled what pages i wanted to check out when I was in Borders flipping.

    I was born in the 80s, grow up with computers and the internet. I love walking through Border's isles and window shop though, and I prefer reading a physical book and magazine.

    Yes, I bought 2000 shares of Border stores stocks at $0.33 per share. But that's not the reason I will get upset. I spent a lot more of that on books I bought... I just love going to Borders for my book club meetings and to window shop and relax... Amazon can't do that for me unless they buy Borders and run the stores as a brick and motor outlet for their internet business.

  • Report this Comment On February 15, 2011, at 10:42 AM, nolatom wrote:

    Books stores will continue to exist in some fashion. Heck, Borders might even continue to exist in some fashion. There has been too much emphasis on the internet and ebooks in the Borders story, they've made a wide range of mistakes over the last decade that got them to this point.

    Their stock will go to zero. Amazon has no desire to establish a b&m presence (though once they lose their sales tax exempt status that may change). Heck, they just fled a warehouse in Texas because the state is suing them for not collecting sales taxes. Kind of amusing, sort of the opposite of the Alamo.

  • Report this Comment On February 16, 2011, at 8:05 AM, TMFLomax wrote:

    Thanks for the thoughts, folks. And nolatom, I think that's a very good point that the help extended by Ackman may have actually made things worse instead of better for Borders' long-term survival, even if it gave it a boost in the short run. That's excellent food for thought right there.

    Alyce

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