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Blockbuster Readies Hostile Bid For Hollywood Entertainment

Dec 28, 2004 (07:12 AM EST)

Read the Original Article at http://www.informationweek.com/news/showArticle.jhtml?articleID=56200635


Blockbuster Inc., which is struggling for growth as the Internet transforms the movie-rental business, said Tuesday that it's prepared to launch an unsolicited takeover bid for rival Hollywood Entertainment Corp. The Dallas-based movie-rental company said it would offer by mid-January $11.50 per share in cash for all outstanding shares of Hollywood Entertainment, if the latter company's board is unwilling to reach an agreement for an acquisition.

Blockbuster said it was willing to consider paying more for the Wilsonville, Ore., company, if financial and other information sought from Hollywood supported an increase. Blockbuster has not been given access to such information by the nationwide operator of Hollywood Video stores.

Blockbuster's current proposal represents a premium over the price provided in the current merger agreement between Hollywood and a group comprised of Leonard Green Partners and Hollywood Chairman Mark Wattles. The group is offering $10.25 a share.

The Blockbuster offer, including Hollywood's debt, would be worth about $1 billion, and would be immediately accretive to Blockbuster's earnings per share and cash flow.

"We believe that the proposal Blockbuster is prepared to make is clearly in the best interests of Hollywood and Blockbuster shareholders as well as consumers," John Antioco, Blockbuster chairman and chief executive, said in a statement. "Additionally, as we have said before, we believe the proposed transaction will better position Blockbuster to compete in the rapidly changing home entertainment marketplace."

Blockbuster's nationwide chain of movie-rental stores has struggled to regain growth stymied by competition from giant retailers selling cheap DVDs, online rentals from rivals, such as Netflix Inc.; and competition from premium cable and satellite services. As broadband services improve across the country, in-store rentals are expected to suffer even more as an increasing number of people are given the option to download movies into a PC or consumer electronic device.

To combat these competitive pressures, Blockbuster eliminated late fees for all U.S. company-operated stores as of Jan. 1, 2005, and slashed the price of its online rental subscription to $14.99 a month, undercutting major rival Netflix by $3.

Blockbuster said acquiring Hollywood would enable it to immediately accelerate plans to bring its offerings to more consumers through Hollywood's 1,920 movie-rental stores in 47 states and the District of Columbia. In addition, Hollywood operates 595 Game Crazy specialty stores, where video game enthusiasts can buy, sell and trade new and used games, hardware, software and accessories.

In 2003, Blockbuster had about 200 franchisees, 1,091 stores in the United States and 671 stores in other countries.

Blockbuster's takeover bid would be subject to certain conditions, including the expiration or termination of the waiting period under the federal Hart-Scott-Rodino Antitrust Improvements Act and the termination of Hollywood's agreement with Leonard Green Partners. Blockbuster expects to obtain the necessary regulatory approvals.

Blockbuster has retained Citigroup, Credit Suisse First Boston and JPMorgan to act as financial advisers for the takeover bid and has received a financing commitment from the same companies.