UPDATE 4-LeBow overtakes Ackman as Borders’ top shareholder

* LeBow buying 11.1 mln shares, or 15.5 pct stake

* Co seeks to offer warrants for 35.1 mln more shares

* Co says Ackman has indicated support

* Shares rise as much as 8.5 pct
(Adds details on Pershing Square warrants, background on
LeBow)

By Phil Wahba

NEW YORK, May 21 (BestGrowthStock) – Financier Bennett LeBow is
buying a 15.5 percent stake in Borders Group Inc (BGP.N: ),
making him the bookseller’s top shareholder ahead of William
Ackman, and could command an even greater share of the company
through a warrants issue.

LeBow — who will also join Borders’ board and become its
chairman — agreed to buy 11.1 million shares for $2.25 each,
the No. 2 U.S. specialty bookstore chain said in a statement.
The transaction is expected to close by the end of Friday.

News of the $25 million cash infusion pushed Borders’
shares up as much as 8.5 percent. The chain is trying to
redefine its business strategy as more readers choose to buy
electronic books and as rivals like Barnes & Noble Inc (BKS.N: )
and Amazon.com Inc (AMZN.O: ) step up the competition.

Borders is also seeking shareholder approval to issue LeBow
warrants to acquire an additional 35.1 million shares at $2.25
apiece.

Ackman, whose Pershing Square Capital Management owns 10.6
million shares, will see his stake fall from 17.7 percent to
14.8 percent of the company after this transaction due to
dilution.

But Pershing Square will receive 2.7 million warrants with
an exercise price of 65 cents following LeBow’s investment, and
another 8.6 million if LeBow exercises his warrants.

If both parties exercise all their warrants, LeBow’s stake
would be 35 percent, and Pershing Square’s 31.1 percent.

The investment comes a few weeks before Borders launches
its own electronics bookstore to catch up to larger rival
Barnes & Noble and online retailer Amazon, which have a large
head start in the e-books market.

Borders said it would use LeBow’s investment to improve its
capital position and bolster its push into the fast-growing
electronic books market.

“At this point, the company is in survival mode and taking
any bit of liquidity it can,” said Michael Souers, a retail
analyst at Standard & Poor’s Equity Research.

In a note, Souers wrote that “risks remain significant in
the book retailing industry, however, with secular trends
putting pressure on brick and mortar businesses;” he maintained
his “hold” recommendation on the stock.

LEBOW’S PAST IN TOBACCO

In a statement, Borders Chief Executive Mike Edwards said
LeBow has “proven experience with driving company
turnarounds.”

LeBow is the chairman of tobacco holding company Vector
Group Ltd (VGR.N: ) which includes cigarette maker Liggett Group.
He will replace Richard McGuire, a former partner at Pershing,
as chairman of Borders’ board.

Vector Chief Executive Officer Howard Lorber is also
joining Borders’ board, whose size is being increased to nine
members from eight.

LeBow gained notoriety in 1996 when Liggett Group, under
his control, broke ranks with other tobacco companies such as
Philip Morris Cos Inc to settle smoking lawsuits brought by
state attorneys general.

At that point, LeBow and investor Carl Icahn were trying to
gain control of Nabisco, spin off its food business and seek a
merger between R.J. Reynolds and Liggett.

The investment comes a few weeks after Borders repaid a
$42.5 million loan to Pershing Square and secured access to
more credit, giving the retailer much-needed breathing room.
[ID:nN31240318]

Borders has lost market share to Barnes & Noble, and in its
most recent quarter, which included the holidays, sales at its
namesake superstores open at least a year fell 14 percent.
Borders is set to report first-quarter results next Thursday.

Last week, Ackman told Reuters that Borders was still not
“out of the woods” and questioned whether there was room for
two national specialty bookstore chains in the United States.
[ID:nN14133770]

Ackman also referred to Pershing as a “stuckholder,”
hinting he might like to exit the investment.

Ackman did not return a phone call and email requesting
comment on whether he planned to shed his stake. Borders said
that Pershing Square had indicated support for the investment
from LeBow.

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(Reporting by Phil Wahba; Editing by Gerald E. McCormick,
Dave Zimmerman and Matthew Lewis)

UPDATE 4-LeBow overtakes Ackman as Borders’ top shareholder