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.
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 Inc.
Under the deal, Pershing Square Capital Management would sponsor a bid by Borders of $16 per share for more than 60 million outstanding Barnes & Noble shares. The news sent Barnes & Noble's shares up 10.6 percent, or $1.41, on Monday to close at $14.69.
Both book sellers face increasingly tough competition from much bigger merchants online and in stores, including Amazon.com, Target Corp. and Wal-Mart Stores Inc. And both have said they are relying for growth on electronic books and readers.
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 to make a “quantum leap” in the e-book space, Morningstar analyst Peter Wahlstrom said.
“It's is a sign Borders is looking to catch up,” Wahlstrom said.
Borders spokeswoman Mary Davis said the company, based in Ann Arbor, Mich., welcomes Ackman's role.
“We have previously expressed to Barnes & Noble our interest in such a business combination, and we look forward to continuing those discussions,” she said.
Barnes & Noble had no comment.
A consolidation could save the companies money. 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 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,” he said. “While that's going on, rivals like Amazon, Apple and Google will just be steaming ahead unimpeded.”
Standard & Poor's analyst Michael Souers said in a note, “While we think this is a reasonable offer, we do not anticipate that Leonard Riggio, Barnes & Noble's founder, chairman and largest shareholder, will find it sufficient.”
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