DETROIT — Borders, the nation's second-largest bookseller, said Thursday it may put itself up for sale and that it has lined up $42.5 million in financing to help the chain continue operations.

Shares tumbled more than 29 percent, or $2.07, to $5.03 in volatile trading at midday.

Borders has lost market share both to online retailers and to discounters like Wal-Mart Stores Inc. and its possible sale was given mixed prospects by industry analysts.

The operations financing announced Thursday comes from hedge fund Pershing Square Capital Management LP, its largest shareholder, and includes an offer to buy Borders' international businesses.

"This will be a challenging year for retailers due to continued uncertainty in the economic environment," Borders CEO George Jones told The Associated Press. "Looking forward to 2008 and beyond, the company determined that additional capital was required."

Borders Group Inc. said it is reviewing a wide range of possibilities, including the sale of only part of the company or certain divisions.

"In the economic environment, we believe we're on the right track and our plan is the right one to get us there," Jones told analysts in a conference call. "Now we have the flexibility necessary to get us where we need to be."

Earlier, in a statement, Jones said: "liquidity issues may otherwise have arisen in the next few months" without the funding commitment.

Credit Suisse analyst Gary Balter, however, noted that the loan from Pershing Square comes at a high 12.5 percent interest rate. And he said the agreement could make Borders a less attractive buyout target.

"We see little opportunity in the near term for Borders to be sold, with the number one candidate Barnes & Noble not likely to pursue a deal at this price," Balter wrote in a note to investors.

Barnes & Noble Inc., the nation's largest bookseller, on Thursday said fourth-quarter profits declined 9 percent.

Barnes & Noble told investors during a conference call that it has not been approached by Borders' investment bankers but if it were, it would take a look at its rival.

The pressure on booksales has been felt broadly. Just Tuesday, Bertelsmann AG reported a sharp decline in 2007 profit and said it was considering all options for its struggling Direct Group, which operates book, music and DVD clubs.

If there is a plus side, Goldman Sachs analyst Matthew J. Fassler said in a note that Borders' "financial distress diminishes the impact of antitrust considerations."

But he also pointed out that Barnes & Noble competes in many of the same neighborhoods as Borders, and it would be hesitant to pick up locations that overlap.

In fourth-quarter earnings results that were delayed for one day, Borders reported net income of $64.7 million, or $1.10 a share, compared with a loss of $73.6 million, or $1.22, during the same period last year.

Revenue fell 2 percent to $1.35 billion, from $1.37 billion, for the fiscal quarter ended Feb. 2.

Analysts polled by Thomson Financial expected profits of $1.42 per share on sales of $1.37 billion.

Quarterly results included a $7 million loss from the sale of Irish and British businesses for $13 million.

Borders suspended its quarterly dividend, which it will plow into operations.

Same-store domestic sales, or sales at stores open at least a year, were up 2.1 percent from the same quarter a year ago. Same-store sales are a key economic indicator.

The sales performance marked the third consecutive quarter of positive same-store sales at domestic Borders stores, and Jones said it shows Borders hasn't been as hard hit as some other retailers.

However, he noted: "We really thought we'd do better than that,"

For the full fiscal year, the company reported a loss of $157.4 million, or $2.68 a share, compared with a loss of $151.3 million, or $2.44, during the previous fiscal year. Revenue rose to $3.82 billion, from $3.72 billion.

The full-year results include a one-time $125.7 million after-tax loss related to the sale of the U.K. and Ireland bookstore operations and $27.7 million of after-tax non-operating charges.

Last March, Borders said it wouldn't provide sales or earnings guidance during a restructuring, but it said it anticipated returning to earnings per share growth in 2008. On Thursday, Jones said that may take a longer than expected.

The sales agreement announced Thursday gives Borders the option until Jan. 15 to require Pershing Square to pay $125 million for its international business, which includes Borders' Paperchase, Australia, New Zealand and Singapore subsidiaries. But Borders said it must pursue the sale of those operations elsewhere before any deal with Pershing.

Jones said six months to a year would be typical for the review under way right now concerning strategic plans.

Borders Group a year ago announced a restructuring that included a fresh face for its U.S. superstores and a jump back into online bookselling. Borders opened the first of its new concept stores last month and has said its new Borders.com Web site would debut by early May.

Jones said Borders will continue rolling out the concept stores this year, with 13 more planned.

Ann Arbor-based Borders said J.P. Morgan Securities Inc. and Merrill Lynch & Co. have been retained as the company's financial advisers to assist the company as it explores strategic alternatives.

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Business Writer Anne D'Innocenzio in New York contributed to this report.

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On the Net:

Borders Group Inc.: http://www.bordersgroupinc.com