Battered by its bad investment in Borders, Bill Ackman’s hedge fund is taking a back seat on the bookseller’s board.
Reeling from bookseller Borders’ mounting losses, Ackman yesterday stepped aside as the company’s largest shareholder to make way for Bennett LeBow, a tobacco kingpin who had been a corporate raider in the 1980s.
LeBow, who is injecting $25 million of much-needed cash to shore up Borders’ struggling business, will replace a partner at Pershing Square Capital Management, Ackman’s New York investment firm, as chairman of the retailer, while taking a 15.5 percent stake.
Ackman — who has reaped kingly sums through shrewd investments in chains like Target and Wendy’s — has lost upward of $150 million through ill-fated bets on Borders shares dating back to 2006.
The brainy hedge-fund tycoon has lately hinted that he’s had it.
Last week, the normally upbeat Ackman admitted to Reuters that Borders is still not “out of the woods” as it struggles against rival Barnes & Noble, and made the corny joke that Pershing Square is a “stuckholder” in the retailer.
That’s a far cry from 2008, when Ackman was still raising his stake in the beleaguered chain.
While other investors scratched their heads, Ackman had touted Borders’ “predictable” cash flow and opportunity to improve its business.
At the time, chatter had circulated that Ackman was angling to merge Borders with Barnes & Noble.
But Borders’ poor store locations made it unattractive, sources said.
LeBow, who in the late 1990s broke ranks with Big Tobacco as he moved to settle lawsuits from state prosecutors, has “proven experience with driving company turnarounds,” Borders CEO Mike Edwards said in a statement.
Ackman’s stake — which had swelled to 17.7 percent as the financier placed too much faith in an ill-fated turnaround effort — will be diluted to 14.8 percent.
While Ackman will receive warrants that could give him as much as 31 percent of Borders if exercised, warrants given to LeBow could keep him on top with a 35 percent stake.
LeBow, who is chairman of tobacco holding company Vector Group, is buying 11.1 million shares at $2.25 each.
That will trump Ackman’s 10.6 million-share stake, for which he paid an average of $16.50 a share, according to filings with the Securities and Exchange Commission.
Borders shares yesterday rose 1 cent to $2.24. The shares are up 90 percent year-to-date.