Borders Group, Inc. (BGP)

enochwasnot (67.56) Submitted: 7/21/08 1:35 PM : Start Price: $18.49 BGP Score: 30.94

Over the past year, Borders has steadily been readying itself for a takeover: divesting themselves of overseas operations; ending their 8 year partnership with Amazon; slashing payroll at all levels and reducing the benefits of all employees in an attempt to cut costs.

They have progressively weeded out full-time employees in favor of part-time so that major medical benefits, personal days, vacation days, etc. are unavailable to a majority of its employees. Huge savings. Additionally, they have lowered the cap on the number of personal days that full-time staff may accrue. The company has suspended matching contributions to the employee 401(k) for the near-term; and all employees who own Borders stock as a component of their 401(k) have been ordered to have it liquidated. The latest? Since its inception, Borders has offered complimentary gift wrap for customer purchases. That is now being eliminated in the interest of frugality.

All these changes--and many more I haven't mentioned--may positively affect the short-term health of the company. IMHO as a Fool, it is an attempt to cook the books as much as possible in order to get the best buyout terms possible. The deal, in fact, may already be done, and we will all get the news with fiscal '09.

This company never truly recovered from the K-Mart buyout, when the top talent checked out. There has been a slow poisoning of the company's culture trickling down from the top since then. As for future takeover candidates, I'm not certain that BKS will bite. Any metropolitan dweller will tell you that Borders and B&N always seem to open stores right across the street from each other. Synergy-Schmynergy, I say. Way too much overlap in the businesses' footprints. A takeover would still surely herald many store closings and the overall restructure would be too costly. Less surprising might be Amazon sniffing around for a bricks-n-mortar face... Wild speculation, all of it.

No one wanted to buy Borders when they last put themselves on the chopping block, and they were arguably in better shape then than they are now. If a takeover doesn't happen this time around, I believe the long-term viability of the company is in jeopardy.

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