What will happen to Borders? Not sure

Borders Group (BGP), the 2nd largest physical bookstore in America, is on the verge of bankruptcy (here is a history of Borders for those interested in the industry). It's still a bit too early to put the nail into the coffin, but the odds are long that Borders can survive without concessions from bondholders or book suppliers. Borders has posted losses for 4 years straight and something like 14(?) of 16 quarters.

The question is whether it will liquidate (chapter 7 bankruptcy) or restructure and re-emerge (chatper 11 bankruptcy). The path chosen is important because it has big ramifications for competitors like Barnes & Noble.

I started looking at Barnes & Noble (BKS) after Geoff Gannon suggested but it looks like Geoff has sold out of his position for a negligible loss (apparently because he found better opportunities elsewhere). I, on the other hand, still find Barnes & Noble attractive. I am sticking with the notion that, suggested by Geoff a while ago, Barnes & Noble's low price-to-sales ratio gives it some downside cushion.

A Borders merger with Barnes & Noble, as suggested by William Ackman, a key shareholder of Borders, would be disastrous for Barnes & Noble. Borders offers nothing for Barnes & Noble. However, a liquidation of Borders will probably provide a big bonus to Barnes & Noble. I'm waiting to see how this whole thing turns out.


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