Borders issues warrants to financier after it fails to find a buyer

The warrants give Pershing the right to purchase stock at $7 a share, Borders said. Pershing, led by William Ackman, controls more than a third of the company and has stakes in several large retailers, including Target Corp. and Sears Holdings Corp.

Borders borrowed $42.5 million from Pershing this year because it couldn't get funds elsewhere to remodel stores and upgrade technology to compete with Barnes & Noble Inc. and Amazon.com Inc.

The bookseller, based in Ann Arbor, Mich., has been for sale since March. Tight credit markets may have kept potential buyers from getting the money to buy Borders, the second-largest U.S. bookseller behind Barnes & Noble.

Shares of Borders rose 8 cents, or 1.2%, to $6.64.

Borders reduced its music inventory 30% in the second quarter and replaced floor space once allocated to compact discs and cassette tapes with higher-growth categories such as children's books and bargain books.

The company reduced costs by adjusting payroll hours to better match store traffic and renegotiated contracts with vendors and energy providers. The changes will cut expenses by more than $120 million a year beginning in 2009.