Back in November, I wondered whether hedge fund genius William Ackman was barking up the wrong tree with his 17% stake in Borders (NYSE: BGP). Since then, the stock has declined from over $10 a share to less than $5. Ackman has shown tremendous commitment to his stake in the company, but I'm still skeptical. The stock is down 34%, in spite of the company's announcement that it is exploring strategic alternatives. The problem is that, in addition to that rosy decision, the company reported pretty ugly fourth quarter and year-end results. Oh, and the company also suspended its dividend to conserve cash.

But Ackman's Pershing Square Capital is staying strong. In light of the company's tight cash position, the fund lent $42.5 million at a 12.5% interest rate, and also agreed to purchase the company's Paperchase, Australia, New Zealand and Singapore subsidiaries for $125 million if Borders decides it wants them to. Ackman's fund also receives 14.7 million warrants to purchase Borders stock at $7 per share -- warrants which are badly out of the money.

But back to the strategic alternatives thing: the company hired JPMorgan and Merrill Lynch to help conduct a "review process will include the investigation of a wide range of alternatives including the sale of the company and/or certain divisions for the purpose of maximizing shareholder value."

The plummeting share price is indicative of the street's skepticism that anything will get done, and I understand why. Given Borders' lack of profitability and a business model that is becoming obsolete, I don't understand why anyone would want to buy Borders.

But this is a contrarian play, and today's plunge has sent Borders' stock into a position where it's trading at a large discount to its book value. But the declining fundamentals could scare off many suitors. I'll be watching this one from the sidelines.