Borders Delays Payments to Gain Time

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Borders Group (BGP) may survive its downturn in sales and weak balance sheet -- or it may not. Its latest plan is to buy time by delaying payments to vendors and landlords. But this will work only if those who are owed money by Borders eventually get some -- or all -- of that money back.

Borders says it will postpone January payments to many vendors to conserve cash. It's not clear that the move will do anything more than delay a possible prepackaged bankruptcy or a breakup of the company.

In its announcement, reported in a number of media, the book chain said it "understands the impact of its decision on the affected parties." General Electric's (GE) financial division said it would provide Borders with a $550 million line of credit, but this involves conditions Borders may not be able to comply with.

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Book publishers, the lifeblood of the Borders business, could decide to walk away from the bookseller altogether. One reason is that the more inventory they risk, the more write-offs they may face. But the situation is more complex than that and does not work in Borders' favor.

Borders sales are now less than $500 million a quarter and could drop further if more stores are closed as part of a restructuring. By contrast, Barnes & Noble (BKS) quarterly sales are closer to $2 billion a quarter. Publishers may not need Borders sales to keep their own revenue at current levels.

Just as important, as sales of Kindle and Nook e-reader devices grow rapidly, e-book sales have begun to compete with book sales at bricks-and-mortar stores. Borders does not have any real market share in the new business. That may make it expendable.

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