Financier LeBow invests $25M in Borders Group to strengthen balance sheet, becomes chairman

Financier invests in Borders, becomes chairman

NEW YORK — Book seller Borders Group Inc. hopes to redefine itself with a new $25 million investment from financier Bennett LeBow, who will become its chairman and biggest shareholder.

In an era of deep discounts on printed books and growing consumer appetite for electronic ones, the struggling company will use the infusion it announced Friday to strengthen its balance sheet and invest in its online business.

“As an astute investor and business operator with a strong technology background and proven experience with driving company turnarounds, (LeBow) will play an extremely important role in helping us redefine the Borders brand that is so critical to unlocking a turnaround,” Mike Edwards, Borders interim president and CEO, said in a statement.

Borders, the nation’s No. 2 traditional book seller behind Barnes & Noble Inc., has cut staff and other costs and closed stores as it faces increasing competition from discounters and online sellers such as Amazon.com Inc.

Borders’ fourth-quarter net income soared as a result of the cuts, but its revenue fell 13 percent as book sales plunged, according to results announced in March. The company plans to report on its first quarter on Thursday.

It’s also playing catch up on the e-book front and has just started taking orders for its Kobo electronic book reader.

On Friday, its shares rose 2 cents, or 0.9 percent, to close at $2.25 as the broader stock market bounced between gains and losses.

LeBow, chairman of tobacco holding company Vector Group Ltd., is buying 11.1 million shares at $2.25 apiece, the company said.

The transaction gives LeBow a 15.5 percent stake in Borders, more than activist shareholder William Ackman, the billionaire leader of Pershing Square Capital Management LP. LeBow could claim a stake of 35 percent through a warrants issue, Borders said.

Borders, based in Ann Arbor, Mich., said Pershing Square supports the deal with LeBow.

The terms of the transaction stipulate that Borders’ board have nine members, including LeBow as chairman. Howard Lorber, president and CEO of Vector Group, also will join the board, and Richard McGuire has left.

Vector Group, which is based in Miami, also owns New Valley LLC, which has a 50 percent ownership stake in Douglas Elliman Realty LLC and holds investments in California and New York real estate projects. Vector subsidiaries Liggett Group LLC and Vector Tobacco Inc. make cigarettes and related products.

Last month, Borders said it had paid back a $42.5 million loan from Pershing Square and received new financing, including a $700 million credit facility that matures in March 2014 and a $90 million term loan credit facility.

Pershing Square’s 10.6 million-share stake, now 17.5 percent of Borders’ outstanding stock, will shrink to 14.8 percent after the transaction because the total number of shares will grow, Borders officials said.

Borders is seeking shareholder approval to issue LeBow warrants to buy an additional 35.1 million shares at $2.25 each, which would bring his stake up to 35 percent.

Pershing Square’s stake is expected to go up to 31.1 percent because of a warrants issue. When Pershing extended the terms of the $42.5 million loan two years ago, Borders agreed to give it those warrants if an equity infusion like LeBow’s arose.