Is Borders Going to Buy Barnes & Noble?

More than two years ago there were rumors that Barnes & Noble might buy Borders (we mentioned it here), and those rumors have persisted. Now the hot rumor is that the tables might be turned:

A hedge fund managed by Borders investor William Ackman is now offering to finance a bid of $960 million in cash, or $16 per share, for Borders to buy the much bigger Barnes & Noble, which put itself up for sale in August. Mr. Ackman, whose Pershing Square Capital Management LP holds 37.3% of Borders shares, made his offer in a regulatory filing that became public Monday.

A marriage of the two book behemoths could lead to some significant cost savings through economies of scale. Barnes & Noble also has proven to be a more adept operator, with skills that it could be applied throughout a single, combined chain. But a combination of the No. 1 and No. 2 bookstore chains in the U.S. would face headwinds, including antitrust scrutiny and Borders' own shaky finances.

Very shaky -- Borders' market capitalization is less than one-eighth of B&N's.

Whichever way the merger goes (if there is any merger) I would wonder about its chances of success -- it seldom works out that combining two weak companies creates one strong one (e.g., Sears and Kmart). And a merger wouldn't solve the real problem, digital books, which was just exacerbated by Google's entry into the market. As a hardcore bibliophile, I fear that book stores are following record stores into oblivion.

Barnes & Noble recently cited studies that suggest consumer spending on new physical books will fall to $19 billion in 2014 from $20.5 billion in 2009.