Borders Group will sell Paperchase stationary unit for $31 million to pay down debt

Borders to sell Paperchase unit for $31M

NEW YORK — Borders Group Inc. will sell its Paperchase Products Ltd. stationery unit to British private investment firm Primary Capital Ltd. for $31 million, the bookseller said Tuesday.

Shares rose nearly 11 percent in midday trading.

The move is Borders Group’s latest to cut costs and improve profitability since financier Bennett LeBow invested $25 million in the retailer in May, becoming the company’s largest shareholder, chairman and CEO.

Borders will continue to buy and carry Paperchase products in its U.S. stores. The company bought a majority interest in Paperchase, based in the U.K., in 2004 for $24.1 million.

It will use $25 million of the proceeds to reduce the amount outstanding under its $90 million term loan credit facility. The deal is expected to close within the next week. Borders’ market capitalization — the total dollar market value of all of a company’s shares — is about $97.9 million.

Paperchase has been a relatively strong, albeit small, part of Borders’ business. In the first quarter, domestic revenue fell 16 percent to $520 million, but international revenue — which includes Paperchase — rose nearly 4 percent to $22.4 million.

But Michael Norris, a senior analyst at the trade books group for Simba Information, said the unit was not part of the chain’s core books business.

“Maybe they think there is more they can do with $31 million in the short term than they can do with Paperchase in the long term,” he said.

Borders, based in Ann Arbor, Mich., has been struggling for several years as it faced falling demand and increasing competition from discounters and online book sellers.

The company in May reported a first-quarter loss as revenue fell 16 percent from a year earlier to $547.2 million, hurt by a drop in U.S. sales. The company has recently launched an electronic book reader and plans to beef up its online operation.

“The sale of our Paperchase business is another major step in strengthening our balance sheet __ and enables us to place an even greater focus on our financial and strategic initiatives, which are vital to a Borders turnaround and revitalization of the brand,” said President Mike Edwards.

Shares rose 16 cents, or 10.9 percent, to $1.63 during midday trading. The stock has traded between 85 cents and $4.28 during the past year.