* Deal to close within the next week
* Borders to use $25 mln of proceeds to reduce debt
* Borders to continue carrying Paperchase products
* Borders shares up 10.2 percent
(Adds analyst note, NEW YORK to dateline; updates share
DETROIT/NEW YORK, July 13 Bookstore chain
Borders Group Inc BGP.N said on Tuesday that it would sell a
British-based retailer of stationery, cards and gifts to a
private equity firm for about $31 million to lower its debt
Shares of Borders, the No. 2 U.S. bookstore chain by sales
after Barnes & Noble Inc (BKS.N), were up 10.2 percent at $1.62
in midday New York Stock Exchange trading.
Borders said it expected the agreement to sell Paperchase
Products Ltd to Primary Capital, a British private equity firm
that invests in middle-market buyouts in Europe, to close
within the next week.
Borders said it was required to use $25 million of the
proceeds to reduce the amount outstanding under its $90 million
term loan credit facility.
"The sale of our Paperchase business is another major step
in strengthening our balance sheet," Borders Group President
Mike Edwards said in a statement.
Standard & Poor's Equity Research analyst Michael Souers
reiterated his "sell" recommendation on Borders shares despite
lauding the sale of Paperchase. He wrote in a research note
that he still had a negative outlook on the book retailing
industry and expected e-book sales to hurt Borders' gross
Borders last week launched its own e-bookstore as it seeks
to catch up to rivals such as Barnes & Noble and Amazon.com Inc
(AMZN.O), which have commanding leads in the e-book market.
Borders, which has faced declining sales for several
quarters as more bookselling has shifted online, in May
received a $25 million investment from financier Bennett LeBow,
who is now the company's chief executive officer.
In March, Borders repaid a $42.5 million loan to Pershing
Square Capital Management and secured access to $700 million in
As part of Tuesday's deal, Borders said its U.S. stores
would continue to carry products designed and sourced by
Borders purchased a majority interest in Paperchase in
2004. Almost all of its stores feature Paperchase gifts and
(Reporting by Ben Klayman in Detroit and Phil Wahba in New
York; Editing by Lisa Von Ahn)