Plagued by debt and flagging sales, Borders Group (NYSE: BGP) has long seemed to have one foot in the grave. Who, then, would ever expect that it might buy out rival Barnes & Noble (NYSE: BKS)?

Borders may not have a great competitive advantage, but it does have friends in high places. The company has long gained a ton of support from major shareholder William Ackman (the man behind hedge fund Pershing Square Capital Management). Now Ackman's at it again, offering to help Borders finance a $900 million buyout of Barnes & Noble, which would amount to paying $16 per share for the bookseller.

The irony, of course, is that Borders has been in a precarious financial position for ages. Until yesterday, it seemed an outlandish candidate to buy its major book superstore rival. Borders hasn't posted an annual profit since the fiscal year ended January 2006, and annual sales have regularly and significantly dwindled. Furthermore, its total debt-to-capital ratio of 90% is hardly the sort of secure figure that would attract cautious investors.

Lately, Barnes & Noble hasn't reported such a hot financial outlook, either, but it can at least boast a promising product. Its e-reader, the Nook, has helped the chain claim a significant 20% of the digital book market. However, the Nook's popularity can't offset the decline in physical book sales, and although the e-book market is growing at an exciting rate, it's still pretty young.

Overall, Borders and Barnes & Noble must face off against a strong rival in both physical and e-books: Amazon.com (Nasdaq: AMZN) and its e-reader, the Kindle. Apple's (Nasdaq: AAPL) iPad is well known for its e-book capabilities, too. And just recently, Google (Nasdaq: GOOG) announced its own digital bookstore, adding to all this bibliophile mayhem. All these factors add up to serious competitive threats for both Borders and Barnes & Noble.

It's doubtful that merging these two booksellers will save either one, given the industry's major changes and the shift toward digital books. Investors should think twice about speculating in these stocks; whichever way this newly thickened plot twists, it seems like an ultimate dead end for Borders and Barnes & Noble.

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Alyce Lomax does not own shares of any of the companies mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.