Borders UK in sale talks with private equity group

The ailing bookseller Borders UK is in advanced talks with Hilco's private equity arm over a potential sale of its 46 stores. The restructuring company's Valco Capital Partners unit plans to acquire the entire shareholding of Borders UK and take the company forward.

Valco is offering to take on the Borders superstores, Books Etc and Borders Express shops in a deal that could save hundreds of jobs, although it is likely that some stores may close.

It is understood that up to two other companies are involved in separate discussions with Borders, although their intentions are unclear. The group has debts of less than £10m but it is thought its main bank Landsbanki is keen to sew up a deal in the coming weeks. Valco and Borders refused to comment last night.

The future of Borders has been the source of feverish speculation since the chain, owned by Luke Johnson's private equity company Risk Capital Partners, appointed Clearwater Corporate Finance to conduct a potential sale at the end of May.

Since Mr Johnson, who is also the chairman of Channel 4, and Risk Capital acquired Borders for £20m in 2007, the bookseller has struggled in a declining market for book shops, with huge sales volumes migrating online to retailers such as Amazon.

Valco Capital Partners is thought to have identified value in keeping Borders running, and is keen to retain the existing management team, including the chief executive Philip Downer. In March, the bookseller appointed the restructuring company RSM Bentley Jennison to review its business and what value it could extract from its portfolio of stores.

On Sunday, it emerged Borders was in the process of selling five of its branches, including its 39,000 sq ft flagship store in London's Oxford Street, to the discount fashion retailer New Look. The other four outlets were Dublin's Blanchardstown Centre, Llantrisant in Anglesey, London Colney and Swindon, and a massive clearance sale is under way.

Hilco, the distressed debt specialist, tried to acquire Woolworths in late 2008 but ended up working on its massive stock clearance before it closed in January.

Earlier this year, Valco acquired Denby Pottery, the 200-year-old manufacturer of premium tableware, in a £30m management buyout deal and the company is thought to be progressing. In March, Hilco's private equity arm bought Allied Carpets, Britain's second-biggest carpet retailer. Valco acquired the 217-store flooring retailer via Sigma Capital Investments, but it later emerged that Hilco was the lead investor behind the fund.

Hilco had wanted to keep its name, which has previously been linked with distressed retail situations, out of the press to stabilise the business. Last month, Allied Carpets Properties division filed a notice of intention to appoint administrators, but this has not yet occurred. It is thought Valco wants to take Allied Carpets forward but with fewer stores.