Borders CEO Faces Uphill Battle to Win Over Investors

a Borders bookstore in Los Angeles
a Borders bookstore in Los Angeles

When struggling book retailer Borders (BGP) brought in corporate raider and cigarette titan Bennett LeBow as chairman and primary shareholder of the company on May 21, company stock was faring better than it had been in months, trading at $2.25 a share.

Over the next 28 days, Borders reported dismal fourth-quarter earnings, appointed LeBow as CEO of Borders Group, laid off a third round of employees and touted a digital future -- but investors clearly aren't convinced LeBow's arrival signifies good news for the company.

As Bloomberg News reported late Friday, Borders stock ended trading at $1.61 a share, which devalued the 11.1 million shares LeBow bought to become the company's primary stakeholders by nearly 30%. Granted, that's nowhere near as bad as the $1.26 a share the stock dipped to on June 9 -- a likely reaction to LeBow adding CEO to his list of executive positions -- but after a quick rebound to as high as $1.92 on June 14, it's been mostly downhill ever since.

Stock Drop Related to CEO's Background?

Standard & Poor's analyst Michael Souers explained the stock drop to Bloomberg as relating to LeBow's background: "Anytime you get management coming in from sectors that are completely different than what they are currently doing, there is a tendency for investors to second-guess that."

And while that line of thinking is technically correct, that didn't stop investors from driving up Borders' stock price -- once under $1 a share for so long it was nearly de-listed from the New York Stock Exchange -- to more than $3.60 a share at this time last year, when the man in charge was Ron Marshall, who was with a private equity company just after turning around Pathmark, the New York/New Jersey regional supermarket chain.

Investors are more likely second-guessing LeBow's specific background -- a checkered history of failed hostile takeovers of larger companies, funneling company money for personal use, and many rounds of litigation -- which doesn't exactly inspire confidence of a robust future for Borders. Giving Chief Financial Officer Mark Bierley the added title of chief operating officer won't do much to alter opinions, either.

At this point, barring a miracle or serious trouble at the company's larger competitor, Barnes & Noble (BKS), the stock decline won't reverse itself anytime soon.