Blockbuster plans to buy Hollywood Entertainment

Blockbuster Inc said Tuesday it will launch a hostile bid for Hollywood Entertainment Corp next month if the rival's directors won't negotiate a deal.

Blockbuster, the largest US movie-rental chain, said it would offer stockholders of its top rival US$11.50 per share in cash, or about US$700 million, plus the assumption of US$300 million of Hollywood debt. That's the same offer that Blockbuster made to Hollywood in November.

Blockbuster it would consider sweetening the offer if Hollywood's board provided requested financial information, which it said Hollywood has refused to provide, and if that information warranted a higher bid. Blockbuster, which first approached Hollywood in November, said it has still not received the requested information.

The cash tender offer is the latest salvo in a competition for Hollywood that pits Blockbuster against Hollywood chairman Mark Wattles and a Los Angeles investment firm, who have offered US$10.25 per share.

The No. 3 rental chain, Movie Gallery Inc, also says it has made an offer but won't disclose its price.

John Antioco, chairman and chief executive of Dallas-based Blockbuster, said his offer "is clearly in the best interests of Hollywood and Blockbuster shareholders as well as consumers."

Antioco in a statement that acquiring Wilsonville, Oregon-based Hollywood would help Blockbuster compete better "in the rapidly changing home entertainment marketplace."

Once dependent on video stores, consumers now have many options for buying or renting movies, including low-priced DVDs at discount stores, online-ordering services and cable movies on demand.

Blockbuster the acquisition would immediately increase its earnings per share.

Wattles, the Hollywood chairman, and buyout firm Leonard Green Partners, originally offered US$14 per share but lowered its price last fall to US$10.25 per share. A special committee of Hollywood's board insisted that in exchange for the lower offer, it be allowed to solicit new bids.

If it succeeds in buying Hollywood, Blockbuster would control about half the nation's rental stores. Still, the company said it believes it would win necessary regulatory approval for the takeover.