Rod Meloni: The Short Goodbye
The laundry list of once proud Michigan companies that overachieved and crash landed in bankruptcy over the last century is sadly and depressingly long; General Motors, Chrysler, Packard, American Motors, Kmart. You get the point. Sadly, it is looking like we may end up adding Borders Books to this ignominious list.
The Borders Brothers opened their Ann Arbor book store in 1971. They could never have known what it would become in the 1990?s, the quintessential national book chain where people [we used to call yuppies] went to see and be seen, drink overpriced caffeinated beverages and on occasion read a good book. Borders was so trendy it opened up a double-decker storefront in Times Square!
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So you?re wondering ?how does a 40 year old company have a short good bye?? Here?s how: you liquidate! Remember when General Motors and Chrysler went through their ?quick rinse? bankruptcy? It was the government?s way of hacking off all the bad and ugly baggage and sending the car companies on their way without all the expensive lard. Well, they were ?too big to fail?. Border?s is not.
It?s big mind you, 399 stores remain, just under 11,000 employees on the payroll, 400 at the Ann Arbor Corporate Headquarters. But it does not command the attention of a major carmaker.
Border?s management valiantly tried to survive striking a $215 million deal to sell to Najafi Companies [more commonly known as the Book of the Month Club]. Najafi would take on nearly a quarter of a billion dollars in Borders debt in the bargain. But in stepped Border?s creditors [you know the guys on the hook for all that debt]. They pulled out the calculator and figured out they could make more by dismantling Border?s piece by piece and selling it off, stores, inventory, headquarters and make more. Bankruptcy courts tend to listen to this kind of reasoning and today agreed to allow the main ?stalking horse? to be a liquidator. A stalking horse is a court chosen company to help the company exit bankruptcy that bids on the right for that position.
This, of course, rocked Border?s management. They thought they had created a new future as a smaller retailer, chastened by the change in technology, to come back stronger. Now, they may end up with ?Going out of Business? signs from coast to coast. This also means the Border?s name will disappear from the landscape as soon as the company?s buildings find other companies to lease them.
The Najafi Companies put out this statement today, expressing more disappointment than most buttoned down finance types do in cases like this: ?We regret to confirm that Direct Brand?s proposed agreement to keep Borders operating is no longer supported by the deciding parties [the creditors]. The deciding parties? legal team and financial advisors have elected another option which is in contrast to what we had envisioned for the future of Borders. However, we remain willing, ready and able to move forward should the deciding parties instead choose to work with us and our existing offer. From day one, our intention had been to keep Borders intact and to provide the best long-term outcome for Borders? loyal customers, publishers, employees and the entire book industry. We are disappointed with today?s decision.?
Fearing a ?run on the bank?, Borders put out this statement today: ?We are focused on preparing for next week?s auction on July 19. We are hopeful that Najafi Companies and other potential bidders who are interested in operating Borders as a going concern will choose to participate in the auction. In the meantime, as the process moves forward, we continue to conduct business as usual. Our stores remain open and serving customers and Borders.com is fulfilling orders.?
Anything can happen at an auction, it is the Wild West personified. Najafi claims it will not make another bid, but it?s only about $40 million apart from the liquidator wanting to sell it all off. Over the weekend Najafi might change its mind. Other companies might find value in some of the locations and bid for parts, if not all. This is unlikely but not unheard of!
If this goes as badly as it already has, another Michigan business sits is on the precipice of history. A lot of people?s livelihoods are at stake, a lot of sorrow is on the horizon, a lot of money has already been lost with more red ink to flow. It?s a short good bye few expected and no one wanted. Michigan residents continue to feel as if they are swimming in a rip tide getting dashed against the rocks, once again. Our decade of economic hopelessness is giving us another object lesson in the vagaries of the business world. We?re getting weary here in the Big Mitten! Why can?t this be the short good bye?
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