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Should Borders Buy Barnes & Noble?

(Barnes & Noble poll updated with additional analyst commentary.)

NEW YORK ( TheStreet) -- Borders (BGP) may be looking to purchase rival Barnes & Noble (BKS - Get Report) with the help of hedge fund manager William Ackman. But would a merger between the two behemoth book sellers be the best bet?

Ackman said in a filing on Monday that his Pershing Square Capital Management, which hold a 37% stake in Borders, is prepared to fund an offer of $16 per share for Barnes & Noble, valuing the deal at about $963.2 million.

Borders management said it supported such a plan. "We can confirm that Mr. Ackman has shared with Borders his perspective that a business combination of Borders and Barnes & Noble could create significant synergies. We can also confirm that Mr. Ackman has expressed his willingness to provide financing for such a transaction, and we welcome his participation. We have previously expressed to Barnes & Noble our interest in such a business combination, and we look forward to continuing those discussions," Borders said.

Barnes & Noble put itself up for sale this summer, saying it is considering strategic alternatives for the company. Since the announcement, speculation over potential bidders has run rampant, with the spotlight flashing on private-equity players, chairman and shareholder Leonard Riggio and investor Ron Burkle. Fears have also grown in certain quarters that Barnes & Noble may not be able to find a buyer, raising a red flag for the entire book industry.

The market is clearly in favor of such a deal, with shares of Barnes & Noble surging 15.7% to $15.36, while Borders is spiking 34.3% to $1.45 in midday trading.

The merger of Borders and Barnes & Noble would result in a significant shrinkage in the book space, but this union might be necessary for at least one of the two to survive.

Technology advances have put pressure on Barnes & Noble and Borders to keep up with both Amazon's (AMZN - Get Report) Kindle and Apple's (AAPL - Get Report) iPad. Thus far, they have both fallen short.

The merger talk comes as Google (GOOG) rolled out its e-book store Google Editions on Monday. The Internet company will provide hundreds of thousands of popular title for sale and millions more for free.

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