Now Hollywood is all but certain to be acquired by Movie Gallery.

Share story

DALLAS — Blockbuster Inc., the nation’s leading movie-rental chain, abandoned its bid today to buy rival Hollywood Entertainment amid opposition from the Oregon company’s directors and resistance from federal antitrust regulators.

Instead, Hollywood is all but certain to be acquired by Movie Gallery, the nation’s largest third-rental chain, creating a new and larger No. 2 competitor to Blockbuster.

Dallas-based Blockbuster let its hostile bid for Hollywood shares expire today and said it would not extend the offer.

“Our decision not to extend our offers was reached after a careful review of all of the available facts and circumstances,” Blockbuster chief executive John Antioco said.

Blockbuster had offered $14.50 in cash and stock per share, or about $985 million for all of Hollywood’s shares and options. Movie Gallery offered $13.25 cash per share, or about $900 million.

The price difference between the bids, however, was not as crucial as the fact that Movie Gallery won swift antitrust approval while Blockbuster ran into problems at the Federal Trade Commission.

Blockbuster conceded that it was unlikely to resolve hurdles at the FTC before Hollywood shareholders vote on the Movie Gallery bid April 22. The company had grown more pessimistic about overcoming FTC objections after a brief and futile meeting with regulators in Washington two weeks ago.

Larry Denedy, a spokesman for Hollywood, said of Blockbuster’s retreat, “This is what we had said all along, that we thought (Blockbuster’s bid) was going to run into problems.”

The FTC had worried that a Blockbuster-Hollywood combination would have too much power over rental prices — the agency killed a Blockbuster-Hollywood deal in 1999 on similar grounds. Blockbuster, however, argued that the FTC failed to consider competition that its stores face from online rental services such as Netflix Inc. and from cheap DVDs sold at discount stores.

“It was always an uphill battle, given the number of stores (Blockbuster) already had,” said Arvind Bhatia, an analyst with Southwest Securities in Dallas.

The combined Movie Gallery-Hollywood chain will have about 4,500 stores and annual revenue of $2.6 billion, second only to Blockbuster, which has nearly 5,800 U.S. stores and $6 billion in revenue.

Thomas Johnson, a spokesman for Movie Gallery, based in Dothan, Ala., said his company would continue to operate Hollywood as a separate chain with larger stores than Movie Gallery locations, many of which are in smaller communities.

Johnson said the acquisition would not result in store closings or layoffs.

“We probably will bring a little more financial discipline, focusing on being a low-cost provider,” Johnson said. He said the new company would have more purchasing power to get better deals from suppliers.

Bhatia said shares of Hollywood and Blockbuster were likely to fall when trading resumes Monday. U.S. markets were closed today for the Good Friday holiday. Hollywood shares closed Thursday at $14.13, well above Movie Gallery’s $13.25 per share bid, which is now the only offer before shareholders. Blockbuster shares ended Thursday’s session at $9.46, while Movie Gallery’s stock traded at $24.06.

From the start, Hollywood’s board had opposed Blockbuster’s bid and refused to let Blockbuster view financial information. Hollywood said the Movie Gallery bid was better because of likely regulatory opposition to a deal with Blockbuster.

In a twist earlier this week, Hollywood’s founder and former CEO, Mark Wattles, had indicated he wanted to buy up to half the Hollywood stores, which could have helped pave the way for Blockbuster’s bid to succeed.

Steve Axinn, Movie Gallery’s antitrust lawyer, called Wattles’ offer a “last-ditch effort” to salvage Blockbuster’s bid, but said it would not have been satisfactory to the FTC.

FTC officials declined to comment today.