Najafi Bid Rejected; Borders Faces Possible Liquidation

The deal between private equity firm Najafi Cos. and The Borders Group, which filed for bankruptcy protection in February, is off, according to The New York Times DealBook. Yesterday, a committee of Borders' unsecured creditors rejected the Najafi takeover proposal.

The Najafi offer was to purchase Borders stores for $215.1 million and assume liabilities of $220 million.

According to the Times, "In a motion filed with the federal bankruptcy court in Manhattan, the committee said it was concerned that the agreement could allow Najafi to buy the company at a low price and then liquidate Borders later without letting creditors benefit."

Instead, the committee suggested that Borders and all of its creditors could benefit more from a court-supervised liquidation. The proposed takover deal "'neither maximizes value for the benefit of unsecured creditors nor provides for the other benefits of a going concern,' the committee wrote in the court filing," the Times reported.

The news followed complaints by landlords of Borders' stores that they would not be given enough notice if their stores were to be closed as part of the deal. Approximately 400 Borders store locations remain in operation, while more than 200 stores were closed earlier this year.

Liquidation would mean that liquidation firms take over the process of selling assets and locations for maximum benefit to creditors.

However, the Times' article states, "The rejection of Najafi, a private equity firm that owns the Book-of-the-Month Club, does not necessarily consign Borders to liquidation. The company is scheduled to begin a court-supervised auction on July 19, and Najafi and other potential bidders, like the Gores Group, can still bid."

An action will take place on Tuesday, July 19, and Najafi could reappear as a bidder during the process, however the Times reported that Najafi and its Direct Brands company (a direct marketer that owns Book-of-the-Month Club) is not interested in making another offer than the one it currently has on the table. Borders is hopeful that the Najafi Cos. and other bidders will participate in next week's auction.