CNBC: Borders investor William Ackman: Bankruptcy not inevitable for book store chain

By Nathan Bomey Business news director

Posted on Wed, Feb 3, 2010 : 2:42 p.m.

The largest investor in struggling Ann Arbor-based Borders Group Inc. believes the book store chain will avoid bankruptcy but that the company may not survive on its own.

William Ackman, CEO of New York-based hedge fund Pershing Square Capital Management, which owns at least 17.7 percent of Borders' shares, told CNBC on Tuesday that he foresees a "low probability" of bankruptcy for Borders.

Ackman's statement encouraged investors, who flocked to beaten-down Borders shares (NYSE: BGP) today, sending the stock price up about 35 percent to $1.27 as of 2:24 p.m.

But Ackman also suggested that Borders could eventually merge with competitor Barnes & Noble -- which would almost surely mean a significant reduction in Borders' stores and its 650-person corporate workforce in Ann Arbor.

"We don't see this as a likely bankruptcy," Ackman told CNBC. "It may become part of an industry consolidation at some point, or it may survive as a standalone company."

Borders has to repay a $42.5 million senior secured loan to Pershing by April 1 -- a deadline that has caused some investors and experts to speculate that Borders will have to restructure or liquidate.

The firm reported disappointing holiday sales and laid off 88 workers at its Ann Arbor headquarters on Jan. 28. That came after CEO Ron Marshall resigned, leaving the interim post to executive vice president Michael J. Edwards.

"I think the company has really stabilized itself financially," Ackman said.

Contact AnnArbor.com’s Nathan Bomey at (734) 623-2587 or nathanbomey@annarbor.com. You can also follow him on Twitter.

Tags: Borders