Video-rental giant Hollywood Entertainment has agreed to a buyout offer of nearly $850 million from smaller rival Movie Gallery. But in a sign that the fight for the Oregon company...
Video-rental giant Hollywood Entertainment has agreed to a buyout offer of nearly $850 million from smaller rival Movie Gallery.
But in a sign that the fight for the Oregon company may not be over, Blockbuster said it was still interested in buying Hollywood.
Blockbuster Chief Executive John Antioco, speaking at an investor conference in Phoenix yesterday, said his company would “still love to acquire Hollywood [Entertainment].”
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Speculation about a bidding war for Hollywood Entertainment, which owns the Hollywood Video chain, drove its shares well above Movie Gallery’s offered price.
The planned combination announced yesterday of the No. 2 and No. 3 video-rental chains would create a company with annual revenue of about $2.5 billion and approximately 4,500 stores. That would be a distant second to No. 1 Blockbuster, which has 9,000 outlets worldwide.
Hollywood, based in Wilsonville, Ore., has been looking for a buyer for several months and had attracted bids from Movie Gallery, Blockbuster and a management group.
Late last month, Blockbuster said it would launch a hostile bid for Hollywood in January if the rival’s directors failed to negotiate a deal. Blockbuster had last offered $11.50 a share for Hollywood.
Under the deal announced yesterday, Movie Gallery of Dothan, Ala., would offer $13.25 a share, or about $850 million, in cash for Hollywood’s shares. It would also assume about $350 million in Hollywood’s debt in the deal. The offer represents a 1.5 percent premium over Hollywood’s closing price of $13.05 Friday. The stock climbed 81 cents, or 6.2 percent, to close at $13.86 yesterday, however, as investors wagered it would attract a higher bid.
“This is not the last we’ll be hearing from Blockbuster,” predicted Arvind Bhatia, an analyst with Southwest Securities in Dallas.
Marla Backer, an analyst with New York-based Research Associates-Soleil, said Blockbuster will have to significantly sweeten its offer to remain competitive.
Yet Antioco discounted speculation that the movie-rental giant would be willing to pay substantially more: “We remain very much interested in it, but we’re not going to pay more than we believe the company is worth.”
Hollywood officials said the merger with Movie Gallery offered shareholders a better deal because uniting the two smaller companies would face less of a challenge from regulators.
In 1999, a plan to rename Hollywood Video stores under the Blockbuster banner was stopped by the Federal Trade Commission.
“It has significantly less regulatory risk than a deal with Blockbuster,” said Daniel Burch, a Hollywood spokesman.
But analysts said that in a Republican administration, even a merger with the nation’s top video-rental chain likely would sail through.