Bidding for Borders Group to start at $215 million

Direct Brands plans a $215-million opening bid for Borders Group Inc., the nation’s second-largest bookseller, in a Bankruptcy Court auction.

Once sold — probably later this month — the Ann Arbor, Mich., bookseller will morph into something different, said turnaround expert Jim McTevia of McTevia & Associates.

“This should have been done long before Borders ended up in bankruptcy,” he said. “An equity firm has to do this and dump all the assets they don’t want. What is left is probably going to be a viable operating company, but not anywhere near what it is today.”

The bookseller said late Thursday that it had an asset purchase agreement with Direct Brands, a company of Najafi Cos., a private equity firm in Phoenix with $1.1 billion in assets.

Direct Brands would start the bidding and other bidders would be able to offer more through an auction in U.S. Bankruptcy Court in Manhattan. In addition to buying most of Borders’ assets, Direct Brands has offered to assume $220 million in liabilities.

Direct Brands, which encompasses Book-of-the-Month Club, Doubleday Book Club and Columbia House, was acquired by Najafi in 2008. It plans to file a tentative purchase agreement before a court hearing July 21.

Borders will operate as a wholly owned subsidiary of Direct Brands if the deal gains court approval.

Mike Edwards, Borders Group president, said, “We are pleased to take another important step forward as we position Borders for a vibrant future and sustainable earnings growth.”

Traditional bookselling is an industry in transition as fewer people purchase their media in bricks-and-mortar locations. Whoever buys Borders would probably reduce the chain’s physical locations and focus more on selling through Borders.com and other avenues, McTevia said.

“They will cherry-pick the locations. There are some very hot Borders locations,” he said.

Guest writes for the Detroit Free Press/McClatchy.