Borders issues warrants to Pershing Square Capital

Borders said in March it was exploring a possible sale as part of a larger financial restructuring plan. According to filings with the Securities and Exchange Commission, if the company didn't sign an agreement by Wednesday or abandoned its plans, it would have to issue more warrants to Pershing. That arrangement was part of an April deal with Pershing to line up $42.5 million in financing.

Pershing, which is run by billionaire hedge fund manager and activist investor William Ackman, currently owns 20.1 million shares of the company, or nearly 29 percent of outstanding stock. Although a potential deal with Barnes & Noble Inc. apparently is off the table, Ackman has suggested that Borders approach online retailer Amazon.com Inc. for a possible deal.

Ann Arbor-based Borders on Wednesday issued warrants to Pershing to purchase an additional 5.15 million shares at $7 each up until Oct. 9, 2014. Borders' shares rose 8 cents Wednesday to close at $6.64--down by more than half from its year-ago high of $16.62.

Exercising the warrants would give Pershing a bigger percentage of Borders' shares and thus a bigger profit from any sale of the company--which could ramp up the shareholder's motivation to pressure Borders into a transaction.

A message seeking comment from Pershing wasn't immediately returned Wednesday. Borders spokeswoman Mary Davis said the company had no comment about a possible sale.

In a note to investors, Stifel Nicolaus & Co. analyst David Schick wrote that he expects the Pershing deal will dilute Borders' share count by roughly 8 percent to 9 percent. He said the process of Borders exploring strategic alternatives, including a possible sale of the company, is likely still ongoing.

"It is no surprise that current conditions (economic and financial market) have not helped the process," Schick wrote.

Borders operates more than 1,100 stores worldwide under the Borders and Waldenbooks names.