Borders Group Inc said on Friday that a company controlled by financier Bennett LeBow has taken a $25 million equity stake in the struggling bookseller, making him its largest shareholder.

LeBow, who will join Borders' board, bought 11.1 million shares for $2.25 each, the No. 2 U.S. specialty bookstore chain said in a statement.

That gives him a larger stake in Borders than investor Bill Ackman's Pershing Square Capital Management, which owns 10.6 million shares, or 17.7 percent of the company before this transaction, and was the largest shareholder.

LeBow is the chairman of tobacco holding company Vector Group Ltd . Vector Chief Executive Officer Howard Lorber is also joining Borders' board.

Borders said it would use LeBow's investment to improve its capital position and bolster its push into the fast-growing electronic books market.

The investment comes a few weeks after Borders repaid a $42.5 million loan to Pershing Square and secured access to more credit.

Last week, Ackman told Reuters that Borders was still not out of the woods and questioned whether there was room for two national specialty bookstore chains in the United States. Borders said that Pershing Square had indicated support for the investment from LeBow.

To make room for LeBow, Richard McGuire, a former partner at Pershing, is resigning from the board.

Borders said it needed the approval of its shareholders to issue LeBow warrants to acquire an additional 35.1 million shares at $2.25 apiece.

Borders shares were down 7 cents, or 3.1 percent, at $2.16 in premarket trading.

(Reporting by Phil Wahba; Editing by Lisa Von Ahn)

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