Nov. 9 (Bloomberg) -- Activist investor Bill Ackman said he purchased an 11 percent stake in Borders Group Inc., the second- largest U.S. bookstore company, sending the shares up the most in 10 months.

``The stock's cheap in our opinion, and the company seems to agree,'' Ackman said today at the Value Investing Congress in New York. Borders, based in Ann Arbor, Michigan, has ``one of the most aggressive share-repurchase programs I've ever seen.''

Ackman, a principal of New York-based hedge fund Pershing Square Capital Management LP, has lobbied for changes at numerous companies including McDonald's Corp., the world's biggest restaurant chain, to boost the share price. He also owns shares of larger bookseller Barnes & Noble Inc. and Sears Canada Inc.

Borders shares may be worth $36 within the next 18 months, Ackman said. The stock rose $2.11, or 9.8 percent, to $23.65 at 4:16 p.m. in trading on the New York Stock Exchange, its biggest gain since January.

Borders in July named former Saks Inc. executive George Jones as its chief executive, ending a six-month search to find a replacement for Greg Josefowicz. The retailer has reported a loss or a profit decline for the past six quarters as it cut costs to drive customers to stores after publishers released fewer blockbuster titles.

``This company has been mismanaged for several years,'' Ackman said in an interview today. The new CEO ``understands the problems at the company.''

``We think we have the right strategies in place to drive shareholder value,'' said Anne Roman, a Borders spokeswoman. ``Obviously Mr. Ackman agrees with us.''

Disclosure Tomorrow

Ackman, who described himself as a ``passive investor'' in Borders, said he will disclose the 11 percent stake tomorrow in a regulatory filing. It was not immediately clear how his ownership is structured. In the past, Ackman has used equities, options and swaps.

Advisory Research Inc., based in Chicago, is Borders' largest shareholder with an 11.3 percent stake, according to Bloomberg data.

Borders reduced its profit forecast for the year ending in January to as much as 65 cents a share from $1.42 when it reported a loss for the second quarter on Aug. 22. The chain slashed its forecast because of soft sales in a weak bestseller environment, Chief Financial Officer Edward Wilhelm said. He also cited store remodels.

``They need to fix it or get rid of'' the international and mall business, Ackman said. ``I think management understands that. The reason why it's a passive investment is because we like what management is doing.''

Store Count

The company has more than 1,200 stores, including more than 600 Waldenbooks, many of which are in malls. The company has operations in the U.K. and Pacific Rim, according to its Web site.

Borders is seeking to revive earnings by remodeling locations and trimming space devoted to selling music.

The company had 62 million shares outstanding as of Aug. 25, an 11 percent decline from the 70.3 million shares it had a year earlier. The company authorized the repurchase of as much as $250 million of its shares in February 2005.

Borders will release third-quarter financial results on Nov. 21.

Pershing Square has said it plans to buy more than $2 billion of McDonald's shares and may wage a proxy fight aimed at boosting their price, a person familiar with the matter said in September. In the past, Ackman has lobbied McDonald's to borrow $14.7 billion for a stock buyback.

McDonald's Actions

McDonald's Chief Executive Officer Jim Skinner, who in May said Ackman's proposals were `financial engineering,'' has expanded restaurant hours and added a stronger coffee blend and $1.29 chicken snack wraps this year, building on consecutive U.S. sales gains in every month since 2003.

Ackman said today he was ``general pleased'' with the steps McDonald's has taken. Since McDonald's disclosed Sept. 1 that Ackman may buy more shares, its stock has climbed 17 percent through yesterday.

He also pushed for changes at Dublin, Ohio-based Wendy's International Inc., including the March initial public offering of shares in its Tim Hortons Inc. restaurant chain in Canada.

Pershing holds a stake in Barnes & Noble and has increased its stake to 8 percent from 2.3 percent, he said today. Ackman told Barron's last month he bought more shares of the retailer because its cash generation may make it a buyout candidate.

To contact the reporters on this story: Josh Fineman in New York at jfineman@bloomberg.net; Nick Baker in New York at nbaker7@bloomberg.net.

Last Updated: November 9, 2006 16:31 EST