Borders Books has made the news again and not in a good way. Last month, the bookseller declined to pay certain publishers for books it had already received from them and issued what amounted to an ultimatum that these publishers and others accept its offer of taking on up to 1/3 of its debt or it would cease doing business with them. Well, to be honest, the refusal to carry these publishers’ books wasn’t reported in black and white but the implication was clear, at least in my mind.
Last week, Borders announced it had reached an agreement with GE Capital for $550 million in refinancing, providing it managed to meet certain requirements. I outlined some of the requirements here. I had my doubts about Borders being able to meet these requirements, but it was at least a somewhat hopeful sign for the troubled company.
Then comes the news from last night. Imagine the reaction of landlords, vendors and publishers around the country as they wake up on this Monday morning to the news that Borders is “delaying” payments again this month. What’s important is that last month’s “delay” was only to certain publishers. Now Borders is refusing to pay some of its landlords and non-book vendors as well. This is not, in my opinion, a move meant to encourage these creditors to help Borders meet the requirements set for by GE Capital.
According to Borders, it is taking this move in order “to help the company maintain liquidity while it seeks to complete a refinancing or restructuring of its existing credit facilities and other obligations.” Their statement adds that the company “understands the impact of its decision on the affected parties.”
Gee, that’s nice of them. I’m sure all those vendors and landlords and publishers — some of whom are not the major publishing houses — appreciate the fact Borders understands. That understanding will be small comfort, however, as they now have to find ways to meet their own bills.
Borders may be trying to avoid bankruptcy, but it is clear at least some publishers expect that to be the final outcome. The NY Times reports that, while certain publishers who met with Borders last week didn’t outright reject the deal Borders is trying to push, they also didn’t accept it. In fact, Borders failed to address “the fundamental issues that drove the company to its current troubled position.” In other words, it seems clear Borders wants to have its cake and eat it too, no matter what the impact might be on its creditors.
An executive with a major publisher who spoke to the Times, and who isn’t identified, noted that only half of Borders’ existing stores are successful. I read that to mean these stores are making a profit. 50% maybe making a profit. Or at least not losing money. Where has the accountability been over the years for Borders? They didn’t get into this situation overnight.
But what really gets me is the gall of Borders saying that their move in delaying payment is in “their best long-term interest”. Okay, one one hand I can see what they’re saying. If Borders were to go under, that would be one less source of income for these vendors. Every business needs to look at not only short-term income but long-term as well. Still, I have to wonder how many of these vendors are large enough to absorb the immediate loss of payment without it affecting their ability to meet their own bills. How many people will lose their jobs, at least temporarily, because of this?
With their stock falling 11% after this announcement, how long can Borders continue to hang on? I don’t want to see them go under. However, I also don’t want the publishing industry, or any of the company’s vendors, to go under because of the problems Borders should have seen coming. Maybe the solution is a court ordered restructuring. It’s clear to me major changes in the executive suite, and in the company mindset, need to be made as well. Borders cannot continue to exist until and unless this occurs.