Bad Times at Borders

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But in exchange, Pershing wanted a lot from Borders. Founder Bill Ackman is known as a shrewd investor who buys undervalued stocks and then pushes companies aggressively to improve their business—a model that led Barron’s magazine to dub him “Mr. Pressure.” In exchange for the loan, Pershing got warrants that will allow it to buy millions more shares and a promise that Borders would sell off many assets.

Ackman’s approach has previously paid off in purchases of McDonald’s and Wendy’s stock; more recently, he’s acquired stakes in Cadbury Schweppes, Sears Holdings, and Target. And along with his stake in Borders, he owns about 2.89 million shares of Barnes & Noble.

Ackman has two representatives on the Borders board, including Pershing partner Mick McGuire. McGuire did not return phone calls from the Observer, but Pershing’s influence can be seen in a series of recent fiscal changes—starting with last spring’s announcement that the entire company was for sale. No buyer came forward, though the company says the search continues. Meanwhile, in June, it finally sold the Australia and New Zealand stores for about $91 million plus some deferred payments next year.