Hollywood Entertainment Corp.'s board of directors today (Feb. 17) rejected Blockbuster's acquisition bid and recommended that shareholders vote in favor of a merger with rental chain Movie Gallery.

Hollywood Entertainment Corp.'s board of directors today (Feb. 17) rejected Blockbuster's acquisition bid and recommended that shareholders vote in favor of a merger with rental chain Movie Gallery.

Blockbuster's unsolicited $1.3 billion offer involved the purchase of all of Hollywood's outstanding shares for $14.50 each.

After the announcement, Hollywood stock was trading down slightly at $13.86.

In a statement, Hollywood says, "Blockbuster's offer raises significant anti-trust issues that cause substantial uncertainty as to whether the transaction would be allowed to proceed by the Federal Trade Commission at all or could be completed without significant delay."

The statement also questions whether Blockbuster could complete the transaction, and if the offer would protect Hollywood shareholders from its risks and conditions.

The FTC has already approved Movie Gallery's $1.2 billion bid for Hollywood for $13.25 per share in cash.