Updated from 9:56 a.m. EST

Shares in bookstore chain

Borders Group

(BGP)

surged Friday after it said it has hired an investment bank to explore strategic alternatives including a possible sale.

Borders jumped 2 1/16, or 16%, to close at 14 15/16 in morning trading.

Ann Arbor, Mich.-based Borders, the No. 2 bricks and mortar book retailer in the country behind

Barnes & Noble

(BKS) - Get Report

, said it has retained

Merrill Lynch

because "it believes that its stock is significantly undervalued in the market." Borders shares have hovered in the teens for the last year.

"The board intends to explore all alternatives for the purpose of creating shareholder value," Gregory P. Josefowicz, president and chief executive officer of Borders, said in a statement. "These could include a recapitalization, a leveraged buyout or a business combination with another company."

Borders Group has stores in all 50 states, the U.K., Australia and Singapore. Its nearly 1,200 retail stores include about 260 Borders superstores, about 900 mall-based

Waldenbooks

stores and the U.K.-based

Books etc.

chain.

Borders stock has sunk from a high of 41 3/4 in July 1998 to its current levels as a result of investor fears concerning the long-term viability of bricks-and-mortar retailers in the face of inroads being made by online booksellers such as

Amazon.com

(AMZN) - Get Report

, said Donald Trott, analyst at

Brown Brothers Harriman

. Trott upgraded his rating on Borders Thursday, ahead of the announcement, to buy from neutral because he believes the stock is "very, very undervalued."

Trott said among the possibilities for Borders is spinning out its online unit as a way of insulating the company against the losses its online unit has been piling up, a move that would mirror Barnes & Noble's strategy. He added that he thought an acquisition by Barnes & Noble or even Amazon was unlikely "unless Amazon comes along and makes an offer they can't refuse."

"I think the management of the company has gotten frustrated over the stock price," Trott said.