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Blockbuster drops Hollywood bid

Sat., March 26, 2005

DALLAS – Blockbuster Inc., the nation’s leading movie-rental chain, abandoned its bid Friday to buy rival Hollywood Entertainment Corp. amid opposition from the smaller company’s directors and resistance from federal antitrust regulators.

Instead, Hollywood is all but certain to be acquired by Movie Gallery Inc., the nation’s third-largest rental chain, creating a new and larger No. 2 competitor to Blockbuster.

Dallas-based Blockbuster let its hostile bid for Hollywood shares expire Friday and said it would not extend the offer.

“Our decision not to extend our offers was reached after a careful review of all of the available facts and circumstances,” Blockbuster chief executive John Antioco said.

Blockbuster had offered $14.50 in cash and stock per share, or about $985 million for all of Hollywood’s shares and options. Movie Gallery offered $13.25 cash per share, or about $900 million.

The price difference between the bids, however, was not as crucial as the fact that Movie Gallery won swift antitrust approval while Blockbuster ran into problems at the Federal Trade Commission.

Blockbuster conceded that it was unlikely to resolve hurdles at the FTC before Hollywood shareholders vote on the Movie Gallery bid April 22. The company had grown more pessimistic about overcoming FTC objections after a brief and futile meeting with regulators in Washington two weeks ago.

Larry Denedy, a spokesman for Hollywood, said of Blockbuster’s retreat, “This is what we had said all along, that we thought (Blockbuster’s bid) was going to run into problems.”

The FTC had worried that a Blockbuster-Hollywood combination would have too much power over rental prices – the agency killed a Blockbuster-Hollywood deal in 1999 on similar grounds. Blockbuster, however, argued that the FTC failed to consider competition that its stores face from online rental services such as Netflix Inc. and from cheap DVDs sold at discount stores.

“It was always an uphill battle, given the number of stores (Blockbuster) already had,” said Arvind Bhatia, an analyst with Southwest Securities in Dallas.

The combined Movie Gallery-Hollywood chain will have about 4,500 stores and annual revenue of $2.6 billion, second only to Dallas-based Blockbuster, which has nearly 5,800 U.S. stores and $6 billion in revenue.


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