Saturday, January 29, 2011

Borders in Translation: Yeah, Bankruptcy is a Possibility

Shira Ovide, Deal Journal - WSJ:

Borders Group disclosed Thursday that a big, smart investor, GE Capital, has committed to $550 million in loans to help fund the struggling bookstore chain. That’s welcome relief for a company that has hoarded cash by delaying payment to book publishers and distributors. Today, Borders stock price has shot up 19% in recent trading, to just under $1.
So good news. Right?

Well ...

Deal Journal translated the Borders news release to bring you what the company probably meant to say.

1) “The commitment provided by GE Capital is subject to certain conditions…”
Translated: There are a lot of “ifs” before we get our hands on GE Capital’s $550 million: First GE has to sell pieces of the loan to other investors, in order to spread out the possible pain. Some Borders lenders and vendors need to commit to loan money, too. And we have to work out a bunch of niggling — tiny, really — issues such as: figuring out what cruddy stores to close and convincing a bunch of our store landlords, book publishers, distributors and the rest of the peanut gallery to take less money than we owe them. Also, when GE Capital starts poking around our financial details, they could kibosh our loan altogether if we’re in way worse shape than GE Capital expects.

2) “We strongly believe that, based on our business strategy, Borders will be able to transform its business to capitalize on the evolving reading marketplace and perform as a best-in-class destination and shopping experience for consumers.”
Translated: Don’t worry! We have a plan! We’re going to close a bunch of stores and “aggressively grow” our online business and our market share in the electronic-book market , and invest more in IT, and cut costs and sell shoppers more high-margin stuff that isn’t books. How? We’ll tell you later. But it will be magical. Borders is doing awesome!

3) “The company believes that today’s commitment from GE Capital positions Borders well to move the business forward, and expects to demonstrate to its vendors how their support for Borders will be to the benefit of the company, the vendors and their shared consumers.”
Translated: Dear vendors and landlords: pretty double Dutch please don’t be mad that we weren’t paying our bills on time. Let’s talk about it. We need you (See No. 1, above) and you need us (see No. 4, below). If you say no, we’ll bring out the big stick and file for bankruptcy. Now where will that leave you?

4) [G]iven the current environment surrounding Borders, and in order to assure that the company can pursue its efforts to position itself to properly implement its business plan, it is prudent as well for Borders to explore alternative avenues, including the possibility of an in-court restructuring. We are confident that whatever path Borders pursues to implement its strategy, we will be able to count upon the support of our vendors, who understand the critical role a strong Borders provides to the reading public…”
Translated: The money quote: Um, yeah. We may need to resort to bankruptcy protection. But don’t pay any attention. That’s why we mention the possibility of bankruptcy at the end of an eye-glazing 700-word news release written by a SWAT team of lawyers and P.R. mavens. Don’t be mad at us! Please don’t stop shopping in our stores, and please don’t stop selling us books to sell. Did we mention that Borders is doing awesome?