Borders deal flops despite approval

American book retailer Borders Group proposed taking a 40 per cent stake in Whitcoulls' owner in a now-aborted $130 million deal involving the sale of Borders stores in New Zealand and Australia.

A&R Whitcoulls, controlled by private equity group Pacific Equity Partners, walked away from buying the five Borders stores in this country and 22 in Australia.

While disagreement over a proposal for Borders to take a shareholding in A&R Whitcoulls was cited, no further details were given.

However, the Overseas Investment Office yesterday issued a February decision approving a Borders-A&R Whitcoulls deal.

The transaction would have seen the stores sold to two new subsidiaries of A&R Whitcoulls - one on either side of the Tasman.

Borders Group would then have been issued with a convertible note, which would have converted into 40 per cent of A&R Whitcoulls' issued capital within two months. The deal was valued at $130 millon.

It is understood the transaction fell apart because the two parties could not concur on terms of the "shareholders' agreement" under which the newly enlarged A&R Whitcoulls would have operated.

The collapse has opened the door to New Zealand retailing cooperative Paper Plus, which for the past two weeks has been "assessing its options" regarding a possible purchase of the Borders stores.

However, a complication is that the whole of Borders Group has now effectively been put on the block because of debt problems.

Borders Group's main shareholder, private equity group Pershing Square, is to provide finance.

As a fallback it has arranged to buy the Australasian operations and some Singapore and British investments for $US125 million ($NZ159 million) by January 15 if Borders Group does not strike a better deal before then.