Borders Group (NYSE: BGP) shares soared over seven percent today after Bill Ackman's Pershing Square announced a financing agreement along with an offer to purchase the company's international businesses. However, is the high-interest financing and low-ball offer really something shareholders should be applauding or just an attempt by the activist to get a good business on the cheap?

Borders Group has been running into problems with a dangerous combination of high debt and low margins in an economy that has little to offer in terms of additional financing. This prompted the bookseller to announce an effort to explore strategic alternatives last week that eventually led to this financial commitment and offer to purchase from one of the most successful activist funds in the world.

Pershing Square's Schedule 13D/A filing offers some key details regarding the proposed deal. The first detail worth noting is the high 12.5% interest rate to be charged on the $42.5 million loan along with the fact that the international businesses are being used as collateral. Many analysts believe that the high interest rate may actually work against any buyout as the buyer would be forced to pay it off.

The $125 million buyout price for the international business may also seem low considering the majority of the company's growth is in these markets. Luckily, it is structured as a backstop purchase so the company is not obligated to sell. More, the company itself admitted this during in their latest press release and maintained that they would only use it as leverage in future negotiations.

Finally, Borders also granted Pershing Square 14.7 million warrants to purchase common stock at $7.00 per share for 7.5 years in exchange for setting up the financing. These warrants represent just under 20 percent of the full-diluted shares of the company on a pro forma basis. While the warrants are above the market price, it may cap the upside over the long-term given the dilutive effects.

In the end, Pershing Square may have bailed out the company for the time being but it certainly came at a price. The activist hedge fund is getting a 12.5% return on a debt investment secured by a purchase that it was already intent on receiving. The same debt will give it an immediate discount to any acquisition of the international businesses and an upper hand with any competition.

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