NEW YORK — Buying out Barnes & Noble would give its much smaller rival, Borders Group, a bigger and firmer stake in the digital world, but some analysts said combining the two largest companies in the shrinking realm of traditional book selling could hurt both — perhaps irreparably.
Activist investor William Ackman and his investment firm announced in a regulatory filing Monday that they had offered to finance a $963 million bid by Borders for Barnes & Noble.
Under the deal, Pershing Square Capital Management would sponsor a bid by Borders of $16 a share for more than 60 million outstanding Barnes & Noble shares.
Both booksellers face increasingly tough competition from much bigger merchants online and in stores, including Amazon.com, Target Corp. and Wal-Mart Stores. And both have said they are relying for growth on electronic books and readers, a still-small arena where another giant, Google, launched its own bookstore Monday.
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Barnes & Noble, which is based in New York, debuted its reader, the Nook, last year and has invested heavily in its electronic bookstore, while Borders sells readers and e-books on a smaller scale through a partnership with Kobo.
The financing from Ackman, who owns 37 percent of Borders' outstanding shares, would let Borders make a "quantum leap" in the e-book space, Morningstar analyst Peter Wahlstrom said.
Borders spokeswoman Mary Davis said the company, which is based in Ann Arbor, Mich., welcomes Ackman's "participation."
Barnes & Noble had no comment.
A combination could save the companies money through consolidation. But Simba Information analyst Michael Norris said combing would be a distraction to the companies in the short term and wouldn't help them with the larger challenges traditional book sellers face.
" (They) would spend a year thinking about what overlapping stores to close, and at least another year combining systems and operations while trying to hang on to talent with both hands," he said. "While that's going on, rivals like Amazon, Apple and Google will just be steaming ahead unimpeded."
Census data show sales at physical bookstores have hovered around $17 billion since 2005 and edged down less than 2 percent to $16.91 billion in 2008, the last year data for which is available.
Electronic books are expected to generate nearly $1 billion in U.S. sales this year and $1.7 billion by 2012 as more people buy readers and use tablets and other computers to read e-books, according to Forrester Research. But analysts said the price still might not be enough for the leaders and shareholders of a company that just won a bitter battle against billionaire investor's Ron Burkle's effort to increase his 19 percent stake in the company.
"In addition, we think a merger of the two bookstores would be unappealing to Barnes & Noble, which holds a digital advantage over Borders," Standard & Poor's analyst Michael Souers said in a note.