Bye Bye, Borders? After All That, Stores May Just Be Liquidated

The Borders auction that seemed like a sure thing just a couple of weeks ago is now up in the air as it appears that the remaining stores may be liquidated instead of bought.

Bankrupt Borders had selected The Najafi Companies, a Phoenix-based private equity firm that also owns music and book clubs business Direct Brands, as its stalking-horse bidder and a deal was supposed to be wrapped up by the end of this month, with Jahm Nafaji paying $215 million for Borders’ remaining stores and assuming $220 million liabilities. But Borders’ creditors (mainly book publishers) and landlords raised concerns that Najafi would simply liquidate remaining stores after purchasing them. They believe they will get more money–somewhere between $252 million and $284 million–if the chain simply liquidates.

According to the Wall Street Journal (NSDQ: NWS), Najafi “was willing to drop his liquidation option if publishers agreed to grant him normal trade terms,” but the publishers didn’t all agree and Najafi withdrew his bid. That doesn’t mean that Najafi now won’t buy the company, but that it would have to top terms offered by liquidators–something it seemed disinclined to do. “We remain willing, ready and able to move forward should the deciding parties instead choose to work with us and our existing offer,” Najafi said in a statement. “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.”

“While we regret Najafi’s withdrawal as the Stalking Horse bidder, we remain hopeful that they or other potential bidders who are interested in operating Borders as a going concern will choose to participate in the auction process on July 19,” Borders CEO Mike Edwards wrote in a letter to employees.

A court-supervised auction for Borders’ remaining stores will take place on July 19. Bids must be submitted by the end of the day on July 17. In addition to a new bid from Najafi, there could be a bid from Gores Group, the Los Angeles-based private equity firm that originally expressed interest in the chain.

Borders filed for bankruptcy in February and since has closed about a third of its stores; 399 remain open.