Borders Group Announces Sale of Borders U.K.

ANN ARBOR, Mich.— Borders Group, Inc. (NYSE: BGP) today announced that following a competitive auction process, the company has reached an agreement to sell its U.K. and Ireland subsidiaries to Risk Capital Partners, a London-based private equity investor. Risk Capital Partners has set up a new, wholly-owned subsidiary company (Bookshop Acquisitions Ltd.) for the purpose of acquiring Borders U.K. and Ireland. The purchase price consists of a £10 million (approximately $20 million) up-front cash payment plus an additional payment of up to £10 million of deferred cash consideration, which is contingent on the future performance of the business. In addition, Borders Group will receive an equity interest of approximately 17 percent in Bookshop Acquisitions Ltd.

The transaction includes all 41 Borders superstores located in the U.K. and the Borders superstore in Ireland, as well as all 28 Books etc. stores in the U.K. Risk Capital Partners also retains the right to use the Borders and Books etc. brand names consistent with a brand licensing agreement as part of the acquisition.

The Borders U.K. and Ireland management team will continue to be led by David Roche, who will serve as chief executive officer of the new company.

“The sale of our U.K. and Ireland subsidiaries is a major step forward in our previously announced strategic plan to drive a turnaround of Borders Group,” said Chief Executive Officer George Jones. “This sale allows us to focus investment and resources on our core business, which is the U.S. superstore segment, and gives the U.K. and Ireland business the opportunity to succeed with the focus and investment Risk Capital Partners will bring. In addition, the equity interest Borders Group received allows our company to participate in the potential future upside of the U.K. business.”

Luke Johnson, chairman of Risk Capital Partners said, “We are excited by the opportunity presented by Borders U.K. and Ireland and pleased that Borders Group will have an equity position in the new company. We intend to build on the strength of the business and this well- respected brand as one of the U.K.’s largest book retailers. Our strategy will focus on improving sales and optimizing the store base while improving margins and inventory management.”

Not included in the sale is Borders Asia Pacific, which includes 20 Borders superstores in Australia and four superstores in New Zealand that are in the midst of a previously announced strategic alternatives review by Borders Group, and that process continues. Also not included in the sale is the company’s successful Paperchase operation, which includes shops within existing Borders stores in the U.K. and Ireland, and in Borders superstores in the U.S., as well as its freestanding stores in the U.K. Paperchase will continue to operate as it has with Borders Group retaining worldwide ownership. Furthermore, the company’s franchise operations in Dubai and Malaysia and its superstore in Singapore are not included in the transaction.

Borders Group will incur a non-cash, after-tax loss for the sale of the U.K. and Ireland subsidiaries of approximately $115 million with minimal tax benefit. The loss will be recorded in the third quarter.