Blockbuster said Hollywood Entertainment's board is hindering its $700 million bid for the company by insisting that Blockbuster agree to not take the offer directly to shareholders...

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Blockbuster said Hollywood Entertainment’s board is hindering its $700 million bid for the company by insisting that Blockbuster agree to not take the offer directly to shareholders for three years.

Directors of Wilsonville, Ore.-based Hollywood Entertainment are demanding a so-called standstill agreement from Blockbuster as the companies negotiate a possible deal, said Edward Stead, Dallas-based Blockbuster’s general counsel. A standstill would prevent a tender offer for the company, reducing Blockbuster’s options for taking control.

“We are having some difficulty getting cooperation from the Hollywood board,” Stead said. “We are unwilling to sign a three-year standstill agreement,” he said.

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Blockbuster, whose bid is supported by billionaire financier Carl Icahn, is competing to buy Hollywood Entertainment against Movie Gallery and buyout firm Leonard Green & Partners. Hollywood Entertainment’s insistence that Blockbuster not take its offer to shareholders, which could be challenged in court, may signal it expects higher offers.

“Eventually, Hollywood is going to have to consider” revising the provision, said Stacey Widlitz, an analyst with Fulcrum Global Partners, who has a “neutral” rating on Blockbuster and Hollywood Entertainment shares. “If they don’t, there are going to be major lawsuits. You can’t just ignore them.”

Leonard Green & Partners bid $10.25 a share for Hollywood Entertainment in October along with Hollywood Entertainment Chief Executive Mark Wattles. Wattles and John Baumer, a partner at the buyout firm, didn’t immediately return calls seeking comment.

Last week, Wattles said he wouldn’t be able to top Blockbuster’s bid for the company after it received the backing of Icahn.

“A strategic buyer can afford to pay more for this company than a financial buyer and I am a financial buyer,” Wattles said.

Thomas Johnson, a spokesman for Dothan, Ala.-based Movie Gallery, said his company also remains interested in acquiring Hollywood Entertainment. He declined to elaborate. Movie Gallery hasn’t disclosed the terms of its offer.

Blockbuster said on Dec. 1 that it is willing to raise its offer for Hollywood Entertainment, its next-largest competitor, provided it gets access to the company’s financial records.

“There is a lot to be done before there can be a real transaction” with Hollywood Entertainment, Stead said.

Blockbuster to cut price of online rentals

Blockbuster said yesterday it’s cutting the price for online rentals to $14.99 a month amid competition from Web-based rental service Netflix.

Blockbuster will charge $14.99, $2.50 less than the rate set in October, Blockbuster said in a statement yesterday.

Blockbuster Chief Executive John Antioco is trying to keep customers from defecting to Internet-based services created by Netflix and Wal-Mart, which rents as well as sells movies.

Reed Hastings, Netflix’s chief executive, said yesterday the company won’t cut its price in response.

Netflix, with 2.65 million subscribers, charges $17.99 per month.

Bloomberg News