Borders and Pershing.....A Very Interesting Idea

26 Nov 2:12am
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Still have not listened to the earnings call yet but will get to it. Had to go pick up the 34lb. turkey for tomorrow. Anyway, had this great idea emailed to me today from JB..

Wall St. Newsletters


"What would happen if Pershing Square guaranteed all of Borders (BGP) debt (maybe for a small fee). The stock would skyrocket wouldn't it? The reason the stock has been hammered in addition to the slowing consumer/macro environment is b/c of the heavy debt load. Eliminating a major concern should get the equity moving significantly. Keep in mind that all of BGP's debt is a credit facility with no restrictive covenants until they are 90% borrowed...Considering they have $518mm of an available $1,125mm outstanding it seems awfully flexible in this environment.

Why would Pershing square do this? Well I doubt that they believe that BGP will default on this debt and they would benefit from both a small fee on the guarantee as well as a significant appreciation in their equity holdings. It's not as if BGP management will stop managing the business prudently and they likely will continue to pull as much costs out of the business as possible and pay down debt on a continuing basis."

I can't poke a hole in this...anyone have any comments?


Disclosure ("none" means no position):Long BGP
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About

ToddSullivan

A Massachusetts based value investor, I look for companies whose current valuation is at a discount to their true value. When I purchase a stock, my typical holding period is several years. I consider buying a stock purchasing a piece of a business. I am confident once I make a decision to buy that eventually the market as a whole will recognize the true value of the business and value it accordingly. It may take 1 month, 6 months or a year, but if I buy it at enough of a discount to its true value my results will be (and have been) superior to the market as a whole. Of all the disparate investing disciplines, value investing has stood the test of time. The great investors of have all been value investors. Warren Buffett, Ben Graham, Bill Ruane (Sequoia Fund), Bill Miller and Wally Weitz, all have consistently outperformed the market for decades by using various forms of value investing. Currently I am a contributing writer to Seeking Alpha, Vinvesting.com, The Stock Masters and Value Investing News. Posts have been reprinted in The Wall St. Journal, Yahoo Finance, Google Alerts, Google Finance, TheStreet.com. 24/7 Wall St. and Topix.net.