Borders falls into administration

Borders UK, the bookshop chain, went into administration this week, putting 1,150 jobs at risk and raising the prospect of a firesale before the crucial Christmas period.

Philip Duffy, Geoff Bouchier and David Whitehouse of MCR have been appointed joint administrators of Borders, which has 45 branded shops including Books Etc

Borders had appointed Clearwater Corporate Finance to advise on a potential sale, but there has been limited interest in the store portfolio.  HMV, the owner of Waterstones, was in discussions but is only interested in a small number of stores because of overlapping store locations.  Similar talks with WH Smith failed to reach an offer.

Borders was acquired in July in a management buyout backed by Valco Capital Partners, the private equity arm of Hilco, the distressed retail specialists. It has struggled in the face of online and supermarket competition. Phil Duffy, joint administrator, said that all outstanding wages had been met.

Mr Duffy added: “All stores remain open for business as normal while the administrators undertake a review of the company’s affairs and seek a purchaser for all or some of the company’s stores.”

The prospect of a firesale before Christmas will pile pressure on the bookseller's rivals Waterstones and WHSmith, as well as ASDA, Tesco and Amazon.  MCR is likely to face opposition over the ownership of Borders stock as publishers try to avoid having their stock liquidated.  The administrator's task will be made even more difficult by the sale-or-return model on which the book trade operates.  Simon Juden, chief executive of The Publishers Association, said last night: “The honest answer is we don’t know if there will be a firesale. The book trade works on a sale or-return basis, so I would think that our members would have their retention claims ready to go.”

Publishers may be willing to salvage some of the Borders chain in order to preserve an important, full-price route to market, one source suggested. However, such a move may face competition hurdles.

The appointment of administrators was delayed because BDO Stoy Hayward, which had been on standby, discovered a conflict of interest that prevented it from stepping in. It is understood that the company acts for Borders Group, the American company from which Borders UK was spun-off in 2007. It retains some rights over concessions.

Hilco is Borders UK’s main sec-ured creditor. It is owed about £6 million, according to Paul McGowan, Hilco’s founding partner. The company had very little bank debt, but was facing a cash crisis as it approached peak trading with supplier difficulties.  In the year to February 2008, Borders UK recorded a £13.5 million loss.

Posted at 07:10AM Dec 03, 2009 by Steven Board in Insolvency  |  Comments[0]