Shares of Borders, which is already under fire for its slow response to the electronic book market, fell nearly 13 percent.
It's a significant red flag, on top of the fact they've been struggling with liquidity and weak sales, said Standard & Poor's Equity Research analyst Michael Souers. Certainly it would help Barnes & Noble to have instability at their primary rival.
Larger bookseller Barnes & Noble Inc's shares soared more than 12 percent.
Souers said Barnes & Noble was also getting a boost from media reports citing a Monday entry on technology blog TechCrunch that said Barnes & Noble had worked with Apple Corp on its tablet. The tablet, whose launch is expected on Wednesday, could have a Barnes & Noble bookstore built in, the reports said.
Barnes & Noble declined to comment on rumors, while Apple did not immediately return calls.
MARSHALL REPORTEDLY HEADING TO GROCER
Marshall became CEO of Borders in January 2009 after running private equity firm Wildridge Capital Management. He was brought in to replace George Jones, who had been CEO since July 2006, after a dismal 2008 holiday season when comparable sales at Borders' superstores fell 14.4 percent.
The Wall Street Journal reported that Marshall would become CEO of supermarket chain Great Atlantic & Pacific Tea Co , citing people familiar with the situation. A spokeswoman for A&P, whose CEO resigned in October, did not immediately return calls.
Prior to founding Wildridge about four years ago, Marshall steered turnarounds at food distributor Nash Finch Co and supermarket operator Pathmark Stores Inc. A&P bought Pathmark in December 2007.
Michael Edwards, who joined Borders as chief merchandising officer in September, will be interim CEO and report to Chairman Mick McGuire while the company searches for a permanent replacement for Marshall.
Edwards, 49, was the CEO of Portland, Oregon-based women's yoga clothing retailer lucy activewear inc for three years starting in 2004 -- experience Borders cited in naming him interim CEO. He oversaw VF Corp's acquisition of lucy in 2007.
Marshall's departure comes on the heels of another weak holiday season. Comparable sales at Borders superstores fell 14.6 percent during the 11 weeks ended January 16.
Borders' troubles led it to put itself up for sale in 2008, but the Ann Arbor, Michigan-based retailer did not find a buyer.
It is closing down 182 of its Waldenbooks stores and will have only 148 of those outlets by early February. Borders continues to run 515 of its namesake superstores.
Borders' largest shareholder is investor William Ackman's Pershing Square Capital Management LP, which owned 17.7 percent of the company as of September, according to Thomson Reuters.
Bookstores have struggled as more sales have moved online to retailers such as Amazon.com Inc .
In particular, investors and analysts have slammed Borders, the No. 2 U.S. bookstore chain behind Barnes & Noble, for moving too slowly into the electronic books market and missing out on what is seen as bookselling's largest growth area.
Amazon introduced its popular Kindle electronic reader in 2007, while Barnes & Noble started selling its Nook last fall.
Borders, in contrast, has no plans for its own e-reader, but expects to open its own e-bookstore by June in partnership with electronic download service Kobo Inc, a spinoff of Canadian bookseller Indigo Books & Music Inc .
Borders hired Korn/Ferry International to head the search for a new CEO.
Shares of Borders were down 14 cents, or 12.8 percent, at 95 cents in afternoon trading, while Barnes & Noble rose $2.11, or 12.1 percent, to $19.49.
(Reporting by Phil Wahba in New York and Gabriel Madway in San Francisco; Editing by Maureen Bavdek, John Wallace and Lisa Von Ahn)