A takeover battle erupted for Ottakar's yesterday after the owner of the Waterstone's book chain tabled a £96.4m bid.

HMV said its 440p-a-share offer was 10% higher than an agreed management buyout and urged Ottakar's independent directors to switch sides and recommend its bid instead.

Details emerged just 48 hours after James Heneage and Philip Dunne upped their offer for the book chain they set up in 1987 and which has 137 stores in Britain.

But the founders' hopes of landing control were dealt a blow when they lost the support of investors Morley Fund Management and Framlington Investment Management, which own 30% of shares and are now backing the HMV bid.

Richard Ratner, an analyst with Seymour Pierce, thought that HMV had landed the knock-out blow and competition concerns were the biggest obstacle in its way.

HMV sought to ease these fears by pointing to data from the market research firm TNS that suggested a combined group would have 23.6% of the book market - below the crucial 25% threshold.

It has sent a submission to the Office of Fair Trading supporting its view that a takeover would not give rise to any material competition issues.

"HMV believes that a combination of Ottakar's and Waterstone's would create an exciting, quality bookseller, providing customers with a better shopping experience," it said.

Savings would be generated by applying its IT systems and Ottakar's would boost its profits from the first full year of ownership, HMV said.

A combined Ottakar's and Waterstone's will have 325 stores in Britain and 1.9m sq ft of trading space.

HMV said the two businesses were "highly complementary" as its Waterstone's arm comprises large outlets and Ottakar's has mainly smaller properties in market towns. Merging the chains will give them more muscle as competition from supermarkets and online retailers intensifies, HMV said.

Shares in Ottakar's ended 30p higher at 437.5p, while HMV fell 1.5p to 244.5p.

Independent directors of Ottakar's recommended the initial 350p-a-share offer from Book Store Acquisitions - the bid vehicle of Mr Heneage and Mr Dunne - because there appeared to be no prospect of respite from tough trading conditions.

Ottakar's has issued two disappointing trading updates already this year and has suffered from supermarkets and online retailers such as Amazon offering heavily discounted deals on bestsellers.