Bill Ackman Aching Over Borders (BGP, BKS)

Bill Ackman, founder and CEO of hedge fund Pershing Square Capital Management LP, has to be feeling sore in his 37% take in Borders Group BGP. On December 6, 2010, Ackman indicated that he would finance a buyout of Barnes & Noble BKS for $900 million. Shares of Borders Group BGP fell 22% in Friday's session, after the nation's second largest bookstore said it was postponing payment to some publishers and warned it faces a severe cash crunch in early 2011, according to Dow Jones Newswires. “Borders has determined that it is necessary to restructure its vendor financing arrangements' and is delaying payments to certain of its vendors. Borders has notified these vendors and will be working with them to restructure their arrangements,” spokeswoman Mary Davis said, reading from a prepared statement. Davis warned that failing to secure refinancing “could cause the company to violate the terms of its existing credit agreements in the first calendar quarter of 2011 and the company could experience a liquidity shortfall.” Borders shares at last check were down $0.01, at 89 cents from Friday's close. The last time the stock dipped below $1 a share was in early February of 2010. It has been a wild ride this year for Borders' shareholders, with the stock swinging between a low of 85 cents in January and a 52-week high of $3.29 in early April. BGP's common stock exited 2010 down 24.5% from where it began in 2009. The Ann Arbor, MI, company made it clear earlier this month that it was in financial straits and needed to refinance its debt. The company has been struggling with weaker sales for months, a trend that has accelerated as customers increasingly turn to the internet to buy books and music. On December 9, Borders reported Q3 sales that fell nearly 18% to $470.9 million from a year earlier, with same-store–sales down 12.6%. The results were a Q3 loss of $74 million, or $1.03 a share, from ongoing operations. The weak economy has also taken a toll on book purchases in general, with companies such as Barnes and Noble BKS, also down about 25% for 2010. BKS is the bigger of the two by sales, is currently looking for someone to buy the company. Troubles facing the two companies have led some to suggest that their chances of survival might be better if they joined forces, a possibility that both companies' top executives have at least considered. Investor Bill Ackman, who has a 37% stake in the company through Pershing Square Capital Management, said earlier this month he would back a cash-merger deal, proposing that Borders buy Barnes & Noble for $16 a share.