Blockbuster threatens hostile takeover of rival

Hollywood Entertainment gets mid-January deadline

December 29, 2004|By BLOOMBERG NEWS

DALLAS - Blockbuster Inc. threatened yesterday to make a $1 billion hostile takeover offer for Hollywood Entertainment Corp. in mid-January after failing to reach an agreement with an earlier bid.

Blockbuster demanded access to Hollywood Entertainment's financial reports. Without the documents, the nation's largest movie-rental chain said, it would offer stockholders of its top rival $11.50 a share in cash, or about $700 million, plus the assumption of $300 million in Hollywood debt.

Blockbuster said the tender offer would be subject to Hollywood Entertainment's terminating its merger agreement with Leonard Green & Partners LP of Los Angeles.

Blockbuster said its $11.50-a-share offer for Hollywood represents a substantial premium over the agreement between Hollywood and the buyout group formed by Leonard Green & Partners and Mark D. Wattles, Hollywood Entertainment's chairman and chief executive. That offer is valued at $10.25 a share.

Hollywood Entertainment's shares rose 7 cents to close at $13.16 yesterday. Blockbuster said it might offer a higher price if Hollywood's board cooperates and if the financial and other information support such an increase.

Blockbuster has pressed for two months to get Hollywood Entertainment's directors to open their books. The bid, supported by billionaire financier Carl C. Icahn, is competing with a third offer, from Movie Gallery Inc. of Dothan, Ala.

Blockbuster, based in Dallas, has lost sales this year to Internet services and cable companies, and the transaction could help stem client defections.

The transaction would help Blockbuster compete against discount retailers including Wal-Mart Stores Inc., online rental companies such as Netflix Inc. and cable companies offering video on demand.

The purchase would allow Blockbuster to control 50 percent of the movie-rental market, said Dennis McAlpine, an analyst in Scarsdale, N.Y.

Hollywood Entertainment's shares have risen 34 percent since Nov. 10, the day before Blockbuster made its unsolicited offer. Blockbuster's shares fell 6 cents to $9.33 on the New York Stock Exchange.

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