As horrid as this sounds, you're going to need a new saddle. Selling the saddle on tack sites, eBay, etc. can get you some money for the new one. Ask your friend the size/brand of the saddle and try purchasing one similar or the same.
Getting a saddle that fits is one of the most important things you can do for your horse to ensure they are able to move comfortably, however if you do plan on riding in it, the least you could do would be to buy a front riser that lifts the saddle off his withers slightly, however this is not a solution to an ill fitting saddle and will most likely still cause discomfort.
You can't really change that saddle so it fits. You could get a saddle fitter and ask what kind of saddle would be comfortable for you and your horse. It wouldn't be fair on your horse to ride in a saddle that rubs or digs on its wither