The Wall Street Journal reported earlier that a deal between the activist hedge fund and bookseller could be reached in the coming days. The Financial Times reported the price would be $6.50 per share, equivalent to a value of $476 million (£375 million).

Should Elliott prevail with its bid, James Daunt, chief executive officer of Waterstones, would head Barnes & Noble, the source said. Elliott bought the British bookshop chain last year.

Both Elliott and Barnes & Noble did not immediately respond to Reuters requests for comment.

Barnes & Noble shares were last up 33.6% at $6.13.

Last October, Barnes & Noble said it was exploring its options after several parties, including founder-chairman Leonard Riggio, showed interest in acquiring the company.

Riggio acquired the flagship Barnes & Noble trade name in 1970s, nearly a century after Charles Barnes started the business in his Illinois home. Riggio grew the business, adding several retail stores across the country and transforming the Fifth Avenue store in new York into the world's largest bookstore. The company's growing success took a hit following the launch of Amazon.com Inc, which started as an online marketplace for books and also as more Americans shifted to non-reading activities like videogames. Since then, Barnes & Noble has grown its website, launched an ereader called Nook to compete with rival stores and online retailers. It has even closed several stores, including its flagship, and cut jobs to save costs.

It now runs 627 retail store as of January this year. The company's annual sales have fallen for the past three years.

Barnes & Nobles has been locked in a legal dispute with its former Chief Executive Officer Demos Parneros after he was fired, partly because of allegations that he sexually harassed a female employee and attempted to "sabotage" a potential sale.

Parneros has rejected Barnes & Noble's accusations.

(Reporting by Uday Sampath in Bengaluru; Editing by James Emmanuel and Diane Craft)