Struggling Borders may be sold

The second largest bookseller in U.S., the Borders Group, may have to put itself for sale amid lack of cash inflow. The group is the latest in the series of sufferers of online discounters.

The group has hired two investment banks, JPMorgan Securities and Merrill Lynch & Co. for advice on potential sale options. Even the rival, Barnes & Noble, has suffered a drop in fourth-quarter by almost 9 percent.

The customers are either turning to wholesale clubs or other discounters like Target Corp. and Wal-Mart Stores Inc. for books and other merchandise. This has a big impact on the business of the booksellers like Borders.

Amazon.com book sales have jumped by double digits in the last quarter, has been taking a big share of the market share.

“This will be a challenging year for retailers due to continued uncertainty in the economic environment," said George Jones, Chief Executive of Borders.

The group is taking some measures like suspending its quarterly dividend in order to shore up its capital.

Borders has also entered into an agreement with Pershing Square Capital Management, which has 18 percent stake in the company.

Borders will borrow $42.5 million from Pershing Square at an interest rate of 12.5%. The loan will mature on Jan. 15.

Perishing Square can buy Paperchase, the British stationery chain of Borders, as well as parts of the company’s international operations, for $125 million less debt.

"Borders, which has finally found a CEO that can improve the merchandising, is finding that its poor cash flow and balance sheet is forcing it to make some very unattractive decisions," said Credit Suisse analyst Gary Balter. He clearly mentioned the loan from Perishing Square, which has been taken at a high 12.5 percent interest rate.

Shares in Borders tumbled around 28.6 percent to reach $5.07.

Some analysts have the view that a merger between the two sellers might be a good option in this time of recession and tough competition. Some even pointed to a merger between Whole Foods Market and Wild Oats Markets, the two largest sellers of organic foods as an example.