I would have left Borders
Financier Bennett LeBow has snapped up a 15.5% stake in the bookseller. As part of the deal, he will become the company's chairman. LeBow's stake provided $25 million in new liquidity to the company, helping to shore up its balance sheet. The dilution diminishes the relative stake of Borders' current top shareholder, Bill Ackman of Pershing Square Capital Management, which will dwindle to 14.8% from 17.7%.
Investors should expect further dilution from the deal, since the company is asking shareholders to allow it to offer LeBow warrants. That would permit LeBow to buy 35.1 million shares of Borders' stock for $2.25 apiece, giving the struggling company nearly $80 million in extra cash. But Ackman is also receiving warrants, and could receive even more if LeBow exercises his.
Regardless of the new cash influx, individual investors should still steer clear of Borders. The bookseller has its work cut out for it, contending with everyone from Barnes & Noble
Long-standing major shareholder Ackman has made some very optimistic statements about Borders' potential to survive. However, just a week ago, he admitted that Borders isn't "out of the woods," acknowledging that two bricks-and-mortar bookstore chains might be one too many. He even referred to Pershing as a "stuckholder." Ouch.
LeBow is a "financier," and while he's touted as being good at turnaround efforts, I'm not sure he'll be up to the difficult task of helping to repair a retailer. He's already chairman of tobacco company Vector Group
Investors might also want to cast a little skepticism on the idea that financial types yield great retail turnarounds. Sears Holdings
Is this Borders' big chance, and a huge opportunity for investors? Or is the bookseller a zombie retailer in search of fresh brains? Let us know in the comments box below.