Bill Ackman boosted the share price of Borders by nearly 40 percent yesterday when he said a bankruptcy filing wasn’t likely for the struggling book retailer.
The New York hedge-fund tycoon — whose 18-percent stake in Borders is deeply underwater as a bet on a company turnaround has failed to pan out — told CNBC late Tuesday that a Borders bankruptcy was a “low probability event.”
He also floated the idea that Borders “may become part of an industry consolidation at some point, or it may survive as a standalone company.”
That reassured investors who have feared that Ackman’s Pershing Square Capital Management might be the one to force the company into insolvency.
Borders has taken out a $42.5 million senior secured loan from Pershing Square that carries a 9.8-percent interest rate and is due April 1. That has stoked speculation recently that Borders might be among the retail casualties of 2010.
But Ackman’s comments may signal a willingness to refinance the loan to the cash-strapped bookseller.
Still, investors might also take his words with “a grain of salt,” given that the financier is looking to salvage his big position in the shares, said Michael Souers, a retail analyst at Standard & Poor’s Equity Research.
Moreover, skeptics said Ackman’s hopes for consolidation are shrinking if he’s referring to a possible merger with larger rival Barnes & Noble. The No. 1 bookseller has already passed on buying Borders.
“These companies have a lot of redundant store locations,” Souers said. “They’d probably prefer to see Borders go out of business at some point.”
Borders shares surged 36 cents, or 38 percent, to close at $1.30. Last week, the stock had sunk to its lowest levels in nearly 10 months amid news of CEO Ron Marshall jumping to run the A&P supermarket chain.