Blockbuster Entertainment Corp. today announced that it has reached an agreement in principle to acquire Erol's Inc. for $40 million.
Erol's operates about 110 videocassette rental and sales stores in the Baltimore-Washington area. The company, which employs approximately 2,700 people, also has outlets in Philadelphia, Cleveland, Chicago, Richmond and Norfolk, Va., and in Virginia's Tidewater area.
Erol's stores will assume the Blockbuster name after the acquisition, said Wally Knief, corporate communications manager for the Florida-based chain. He said the company has not yet decided whether it will close any existing Erol's stores.
Baltimore area Erol's employees were unaware of the acquisition as of this morning, and reacted with surprise and disbelief when told of the announcement. The company said that employees were being notified through the voice mail systems in Erol's stores.
Blockbuster franchise owners will have the option of acquiring the Erol's stores that exist within their franchised areas. In Baltimore, 17 of the 18 Blockbuster stores are franchises.
"We wouldn't overlap a franchise area with a company store," said Knief. "We would be protecting the territorial integrity of the franchisee."
Blockbuster will purchase Erol's operations in exchange for cash, a note, Blockbuster common stock and debt assumption. Completion of the acquisition is subject to certain customary conditions including the execution of a definitive acquisition agreement and the obtaining of certain lenders' agreements.
Erol's founder and principal stockholder, Erol Onaran, said that he "believes that the proposed acquisition is in the best interests of Erol's, its employees and customers particularly in view of Blockbuster's significant financial resources."
H. Wayne Huizenga, chairman and chief executive officer of Blockbuster, said that "the agreement in principle provides an outstanding opportunity for Blockbuster and its franchise owners to broaden the base of our stores."
Blockbuster, which opened its 1,500th store today in Vancouver, British Columbia, said 762 of its stores are company-owned and 738 are franchise-owned.
Blockbuster has stores in 142 major markets in 44 states, the District of Columbia, Guam, Puerto Rico and Canada and three major markets in the United Kingdom.
Blockbuster, which is headquartered in Fort Lauderdale, Fla., entered the Baltimore market in December 1987. Its stores are larger than many other local video outlets. For example, a typical 6,000-square-foot Blockbuster store may carry as many as 7,500 movie titles and 10,000 tapes. A store might offer as many as two dozen copies of popular movies.
Erol's, which is based in Springfield, Va., has operated with smaller outlets. For example, an Erol's official said in early 1989 that the average Erol's store was 3,000 square feet and carried about 3,000 titles and 8,000 tapes.