Borders Group Inc., the second-largest U.S. bookstore chain, lost more than a fifth of its market value Friday after saying it had delayed payments to some publishers while trying to avert a liquidity crisis.
Borders shares sank 26 cents, or 22%, to 90 cents, the biggest drop in more than two years. The shares have retreated 24% this year.
The company said last month that it was in talks to refinance debt and might violate its credit agreements in the first quarter if negotiations failed. Borders reiterated Friday that it couldn’t guarantee that its initiatives would be successful. If the refinancing fails, the chain may face a “liquidity shortfall” in the next quarter, said Mary Davis, a Borders spokeswoman.
“The timing certainly raises eyebrows,” said Peter Wahlstrom, an analyst with Morningstar Inc. in Chicago. Bookstores are typically most flush with cash at the end of the holiday shopping season, when they can stock lower inventories for the slow winter months, he said.
“If they are doing this at the end of December, it’s more concerning,” Wahlstrom said.
Borders is in discussions with potential lenders that would provide funds through the start of 2012, the Ann Arbor, Mich., company said Dec. 9. Borders also said it was looking to raise money through asset sales and cost reductions.
If Borders doesn’t find additional lenders, the company may have to accelerate store closures, Wahlstrom said.
Borders and larger rival Barnes & Noble Inc. face growing competition as consumers download more digital books on electronic devices such as Amazon.com Inc.'s Kindle. Borders has reported three quarterly losses in a row as sales and its store count shrank.
Borders had $23.1 million of cash on hand at the end of October, compared with $298.4 million of short-term debt and $55.8 million of long-term debt, the company said in its third-quarter earnings report.
On Dec. 6, the chain’s largest investor, William Ackman’s Pershing Square Capital Management, disclosed that it would help Borders fund a bid for Barnes & Noble.