Blockbuster may launch hostile bid for Hollywood

Tue Dec 28, 2004 11:50 AM ET

NEW YORK, Dec 28 (Reuters) - Blockbuster Inc. (BBI.N: Quote, Profile, Research) , the No. 1 U.S. video rental chain, on Tuesday threatened to launch a $1 billion hostile bid for Hollywood Entertainment Corp. (HLYW.O: Quote, Profile, Research) if its smaller rival decides to stick with a previous offer from a buyout firm.

Dallas-based Blockbuster said it would launch a tender offer for Hollywood at $11.50 a share by mid-January if Hollywood rejects its pleas to consider friendly talks to counter a previous $10.25-a-share agreed bid by Leonard Green & Partners LP.

Blockbuster also said it would consider raising its $11.50 a share bid if Hollywood cooperates and discloses financial information to help Blockbuster value the company.

It said its $11.50-per-share offer is worth about $1 billion, including Hollywood debt. Last month, Blockbuster made an unsolicited bid for the company at the same price, which was worth about $700 million, excluding debt.

Blockbuster's move is the latest in a long-running takeover saga involving Hollywood. The No. 2 video chain agreed in March to be bought by Leonard Green for $14 a share, or $880 million, which later slashed its offer to $10.25 a share, or about $645 million, citing financing challenges.

Other companies, including Movie Gallery Inc. (MOVI.O: Quote, Profile, Research) , have also expressed interest in bidding for Hollywood, sending its shares well above the Leonard Green offer price.

Hollywood shares were recently trading at $13.08, down 1 cent, on Nasdaq.

One analyst said Blockbuster is likely to prevail in its pursuit of Hollywood.

"Blockbuster's actions today will prompt shareholders to place pressure on Hollywood's board over the next several days," said Wedbush Morgan Securities analyst Michael Pachter in a research note. "We also believe that Blockbuster will ultimately prevail in its attempt to acquire all the outstanding stock of Hollywood."

Also looming in the background is the threat of shareholder litigation, possibly by billionaire investor Carl Icahn, who has accumulated significant stakes in both Hollywood and Blockbuster and has urged the companies to open friendly talks.

"The proposal Blockbuster is prepared to make is clearly in the best interests of Hollywood and Blockbuster shareholders as well as consumers," Blockbuster Chief Executive John Antioco said in a statement.

A purchase, he said, would help Blockbuster compete with the aggressive sale of DVDs by mass and online retailers and the growing might of premium cable and satellite services.

Hollywood could not immediately be reached for comment.

Blockbuster said the proposed transaction would immediately boost profit per share and cash flow.

Blockbuster said Citigroup Global Markets Inc., Credit Suisse First Boston and J.P. Morgan are advising it on the transaction and have committed to offer financing sufficient to complete the tender offer.