PHILADELPHIA (Reuters) Hedge fund manager William Ackman is raising his wager on bookseller Borders Group Inc, offering to help it buy larger rival Barnes & Noble Inc for $963.7 million.

The potential bid, which got a lukewarm reaction from analysts, would value Barnes & Noble at $16 a share, a 20 percent premium from Friday’s closing price. The company’s stock was up 13.6 percent at $15.09 in afternoon trading while Borders was up 34 percent at $1.45.

Both booksellers have struggled with competition from online retailers and electronic books. Barnes & Noble has been investing in its Nook e-reader to compete with rivals such as Amazon.com Inc and Apple Inc. Google began selling digital books yesterday.

“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,” said Standard & Poor’s Equity Research analyst Michael Souers.

Souers said most Barnes & Noble shareholders would likely hold out for a higher price since the retailer’s stock fell below $16 only in recent months. Barnes & Noble’s stock has dropped about 26 percent so far this year.

Analysts doubted there would be significant antitrust concerns about a deal because of the competition from online retailers and electronic books.

Barnes & Noble spokeswoman Mary Ellen Keating declined to comment on the potential bid, which was disclosed in a regulatory filing.

Borders confirmed Ackman’s willingness to provide funding for a deal and said it previously expressed to Barnes & Noble an interest in a business combination.

A deal could help the companies cut the number of their stores, but does not answer more pressing issues, said Morningstar analyst Peter Wahlstrom.

“It doesn’t solve the needs for increased pricing power for these companies, it doesn’t solve the issue of needing to generate additional volumes, and it doesn’t create long-term competitive advantages,” said Wahlstrom.

Ackman’s Pershing Square Capital owned about 15 percent of Borders as of September 30. Ackman, who would have a 37 percent stake if all warrants are exercised, is known for making big and often noisy bets on undervalued companies.

A merger would give the booksellers more clout with publishers, authors and others in the growing e-book market, said Stifel Nicolaus analyst David Schick.

“I think that bookstores doubling their negotiating power in the e-book game makes some sense,” Schick said.