DETROIT (AP) – Borders, an Ann Arbor-based bookseller, could become the latest victim of the credit squeeze, announcing yesterday that it may put itself up for sale. Rival Barnes & Noble, meanwhile, saw fourth-quarter profits drop 9 percent as the industry struggles with intense competition from discounters.

Shares in Borders tumbled more than 39 percent as the nation’s second-largest bookseller said it was considering options including the sale of the company or certain divisions, and that it had lined up $42.5 million in financing to help it keep running through the year.

“It’s a crunch of three C’s- credit, capital and consumer spending,” said Dan Ansell, a partner at Greenberg Traurig LLP and chairman of its real estate operations division.

Despite its earnings slide, Barnes & Noble boosted its dividends and surprised Wall Street with predictions of a profitable first quarter. Analysts said the nation’s largest book seller would be the most likely suitor for Borders.

Both big bookstore chains have deepened discounts for their members, as shoppers are even more focused on low prices for discretionary items as they pay higher gas and food costs.

But analyst Michael Norris at market research firm Simba Information said customers are increasingly turning to wholesale clubs and other discounters like Target Corp. and Wal-Mart Stores Inc. for books and other merchandise.

“This is going to be a really tough year” for booksellers, Norris said.

Borders is a year into a restructuring that includes revamping its U.S. superstores as part of an effort to lure more shoppers. But the evaporating credit market led to the financing announced Thursday from hedge fund Pershing Square Capital Management LP, its largest shareholder.

“In the economic environment, we believe we’re on the right track and our plan is the right one to get us there,” CEO George Jones told analysts. “Now we have the flexibility necessary to get us where we need to be.”

Without the funding, he said, “liquidity issues” may have been only months away.

Ansell noted that some retailers “are not able to borrow money as easily as in the past to meet their capital requirements.”

The tightening of credit among consumers causes them to spend less – thereby straining the cash flow for retailers and increasing their dependence upon credit to meet their operating costs.

Borders suspended its quarterly dividend, which it will plow into operations, and says its plans for earnings per share growth may take longer than expected.

“Borders, which has finally found a CEO that can improve the merchandising, is finding that its poor cash flow and balance sheet is forcing it to make some very unattractive decisions,” Credit Suisse analyst Gary Balter wrote to investors. The loan from Pershing Square, he noted, comes at a high 12.5 percent interest rate.

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