ANN ARBOR, Mich. — Borders Group Inc. said Friday that it hired Merrill Lynch & Co. for advice on ways to boost the book retailer's stock, which has fallen 70% in about two years.
The No. 2 U.S. book chain is looking at such options as a leveraged buyout, a business combination with another company, or a recapitalization.
The news sent Borders shares up $2.06, or 16%, to close at $14.94 on the New York Stock Exchange.
The stock has tumbled from a peak of $39.63 in July 1998 amid fears Borders would lose sales to fast-growing Internet booksellers such as Amazon.com Inc. Its shares last week fell to a four-year low.
"I'd like to see the stock go up and for them to take the best course to get that accomplished," said David Dreman, chairman of Dreman Value Management, Borders' largest shareholder with about 10.3 million shares as of December.
Borders' decision to explore strategic options was due to concern about shareholder value and was not the result of someone approaching the retailer with an offer, the company said.
"While we did have a good year and improving profit, and the Internet penetration did slow down dramatically, there wasn't a reflection of that in our market price," said Vice Chairman Bruce Quinnell in an interview.
The Ann Arbor, Mich.-based retailer has 293 U.S. Borders Books & Music stores, about 900 Waldenbooks in shopping centers, and 32 Books Etc. and Borders stores in Britain.
Analysts said Borders could be a takeover target for another retailer or investor group that buys undervalued firms. Borders also could undergo a leveraged buyout in which some of its assets would be used to secure funding for the purchase.
"There's an infinite array of options," said analyst Donald Trott of Brown Bros. Harriman & Co., who on Thursday raised his rating to "buy" from "neutral" because he thought the stock was undervalued.
Borders also could undertake a large share repurchase program given its strong balance sheet, Trott said.