Hollywood Ent. Board Rejects Blockbuster

Hollywood Entertainment's board of directors unanimously rejected a bid to be acquired by Blockbuster Inc., recommending instead that shareholders approve a merger with rival video store chain Movie G

(The Hollywood Reporter) -- Hollywood Entertainment's board of directors unanimously rejected a bid to be acquired by Blockbuster Inc., recommending instead that shareholders approve a merger with rival video store chain Movie Gallery.

Hollywood and Movie Gallery have been arguing that federal regulators would significantly delay or object outright to Hollywood being taken over by Blockbuster because of concerns over competition. Blockbuster has said that new business models and technologies should be considered competition to bricks-and-mortar movie rental stores, easing concerns over a Blockbuster-Hollywood combination that would create a home video industry giant with more than half the nation's market share.

Blockbuster also has offered more per share to Hollywood than has Movie Gallery: $14.50 compared to $13.25. So far, Wall Street seems to be predicting that when Hollywood finally is sold, it will be for a price closer to Blockbuster's offering, as shares of Hollywood closed Feb. 17 at $13.85.

In a letter to shareholders on Feb. 17, Hollywood said that its board "believes the uncertainties and possible delays inherent in Blockbuster's offer outweigh the approximately 9.4% premium being offered by Blockbuster."

As for Blockbuster's claim that the Federal Trade Commission should approve of a Hollywood-Blockbuster combination because of the changing nature of competition, Movie Gallery executive VP/general counsel Page Todd said: "In the video-rental business the competition is very local in nature. It is perfectly obvious that Blockbuster's closest competitor is Hollywood, not Wal-mart, not Netflix, and not pay-per-view or video-on-demand."

Analyst Michael Pachter of Wedbush Morgan issued a note to clients on Feb. 17 predicting that Hollywood shareholders would ignore the advice of the board for now, opting instead to wait to see what the FTC has to say about Blockbuster's larger offer.

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