As a bidding war raged yesterday for Hollywood Entertainment Corp., the founder and CEO of the nation's No. 2 movie rental chain abruptly resigned.
PORTLAND, Ore. — As a bidding war raged yesterday for Hollywood Entertainment Corp., the founder and CEO of the nation’s No. 2 movie rental chain abruptly resigned.
Hollywood Chairman and CEO Mark Wattles had agreed last summer to take the company private with the help of Los Angeles buyout firm Leonard Green & Partners. But the Hollywood board responded to shareholder pressure to take other bids.
Wattles did not comment on his departure and calls were referred to a New York merger consulting firm, MacKenzie Partners, which did not have any immediate comment.
His resignation left Hollywood the target of a takeover fight between Texas-based Blockbuster, the largest movie rental chain in the nation, and No. 3 Movie Gallery, based in Dothan, Ala.
On Wednesday, Blockbuster said it would pay nearly $1 billion in cash and stock for Hollywood Entertainment, which has already agreed to a $900 million cash buyout offer from Movie Gallery.
All three chains face growing competition from online movie-order services, including Netflix Inc., as well as from retailers like Wal-Mart Stores Inc.
Blockbuster, founded in 1985 in Dallas, expanded rapidly under the management of trash-hauling magnate Wayne Huizenga before it was purchased in 1994 by entertainment conglomerate Viacom Inc., which in turn separated from Blockbuster last year.
Wattles founded Hollywood in 1987 in Portland and modeled his first store directly after Blockbuster stores. He was successful at scouting and beating Blockbuster to prime locations in many cities.
In a statement released Thursday, Movie Gallery noted that most of Hollywood’s stores compete directly with Blockbuster stores, with more than 80 percent in the same local market, raising antitrust concerns about the Blockbuster bid.
“By contrast, relatively few Movie Gallery stores are located close to a Hollywood store,” the Alabama-based company said.
Movie Gallery has focused on rural markets to expand rather than the urban and suburban market shared by Blockbuster and Hollywood.
Movie Gallery and Hollywood announced early in January they had agreed to a merger that would pay $13.25 in cash per Hollywood share.
In its statement Thursday, Movie Gallery said: “We believe our pending merger is better for Hollywood’s shareholders, employees and customers than the Blockbuster offer, which consists of $11.50 in cash and $3.00 in Blockbuster stock.”
Both suitors would assume $350 million in Hollywood debt.
Blockbuster officials in Dallas were not immediately available to comment on the Movie Gallery statement.
Hollywood officials said a special committee of the company board was considering the offer from Blockbuster and would advise its shareholders of its recommendation by Feb. 17. The company urged shareholders to make no decision until then.
Blockbuster’s hostile tender offer would begin today and run through March 11.
Meanwhile, Hollywood named F. Bruce Giesbrecht, the company’s president and chief operating officer, as chief executive. But there was no word on a replacement for Wattles as chairman.
Hollywood shares rose 12 cents to close at $14.37 on the Nasdaq Stock Market, while Blockbuster shares rose 37 cents to close at $9.77 on the New York Stock Exchange. Movie Gallery shares fell 45 cents to close at $20.80 on the Nasdaq.
Hollywood, which is based in suburban Wilsonville, has rejected Blockbuster’s advances over the past several months, including an offer of $11.50 per share in cash.
Analysts said Blockbuster could face more difficulty winning approval for a deal from antitrust regulators. The Dallas company said Wednesday it had received a request for more information from the Federal Trade Commission.
A combination of Hollywood Entertainment and Movie Gallery would create a chain with about 4,500 stores and annual revenue of about $2.5 billion, still far behind Blockbuster, which has about 9,000 stores worldwide.