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Borders wins approval to start auction with liquidator bid over Najafi

Borders Group Inc. could be liquidated as early as next week if no bidders emerge by a bankruptcy court-mandated deadline Sunday night.

The lead bidder, Phoenix-based private equity firm Najafi Cos., withdrew its bid late Wednesday after unsecured creditors objected that Najafi was being given lead bidder status even though it would be allowed to immediately liquidate parts of the Ann Arbor-based bookseller for a profit.

Najafi Cos.’ withdrawal paves the way for a liquidation of the chain next week if no new bidders emerge for a scheduled Tuesday auction.

The deal with Najafi Cos. fell apart when landlords and publishers owed money in the bankruptcy complained that the terms of the bid would allow the buyer to liquidate the company after a sale. Najafi was chosen on July 1 as the company to make an initial bid, known as the stalking horse bid.

They also objected that Najafi would get paid a $6.4 million breakup fee even if it didn’t win the bankruptcy auction. By contrast, a group of liquidators led by Hilco Merchant Resources and Gordon Brothers Group could raise more money than Najafi’s bid without being paid a fee, the creditors argued in court papers filed Wednesday.

Najafi Cos., a global media distributor, offered to pay Borders $215 million and assume $220 million in liabilities. Creditors said Borders would likely fetch between $252 million and $284 million after liquidation.

Ann Arbor Mayor John Hieftje said Ann Arbor’s real estate market is robust and would weather the possible closures of the flagship store in downtown Ann Arbor and the headquarters.

“We would of course like to see a successful Borders store in Downtown Ann Arbor,” Hieftje said in an email. “But we have been facing the reality of them closing for many months.”

Najafi Cos. spokesman Greg Sexton said the company is disappointed with the decision but that it remains “willing, ready and able to move forward should the deciding parties instead choose to work with us and our existing offer.”

“From day one, our intention had been to keep Borders intact and to provide the best long-term outcome for Borders’ loyal customers, publishers, employees and the entire book industry,” Sexton wrote in a statement.

“We remain steadfast in our commitment to our current publishing and home entertainment portfolio, as well as our recent acquisition of the same businesses in France, Switzerland and Belgium.”

Tags: Najafi