NEW YORK — In the latest installment of the Video Wars, Hollywood Entertainment’s board Thursday rejected rival Blockbuster’s unsolicited buyout, urging its shareholders to vote instead for a previously announced merger with smaller Movie Gallery.
Hollywood said it believes “the uncertainties and possible delays inherent in Blockbuster’s offer outweigh” the higher pricetag.
Movie Gallery made an all-cash bid of $13.25 a share.
Blockbuster has launched a hostile tender offer worth $14.50 for Hollywood Entertainment shares — roughly $11 in cash and $3 in Blockbuster stock.
“After careful consideration, including its receipt of the unanimous recommendation of a special committee of independent directors, the board unanimously recommends that Hollywood shareholders reject the offer and not tender their shares to Blockbuster,” the board said. The company’s point is that federal antitrust authorities, after review process of uncertain duration, might block a merger of the nation’s top two video chains.
Blockbuster general counsel Ed Stead told Daily Variety the offer still stands. “There are two offers out there — one at $13.25 and one at $14.50 — the shareholders will make the decision on which offer to chose.”
Blockbuster, in other words, will continue to ignore Hollywood Entertainment’s cold shoulder, encouraged by savvy investors like Carl Icahn and entranced by the scale a merger with Hollywood could provide.
Icahn holds large stakes in both Blockbuster and Hollywood Entertainment.
Last week, the Federal Trade Commission gave its tacit blessing to Hollywood’s merger with Movie Gallery when it let a deadline pass without requesting additional info. The commission, however, has requested more documentation from Blockbuster in support of its bid for the No. 2 vidtailer.
Stead said Blockbuster hopes the FTC will act “responsibly and in a timely manner” — reaching a decision on the viability of Blockbuster’s offer before Hollywood shareholders convene to vote. No date has been set for a vote.
Blockbuster argues that its business has become global in scope and its competitors now include mass retailers and online and on-demand services.
Movie Gallery said Thursday it was pleased with Hollywood’s recommendation and blasted Blockbuster’s reasoning.
The video rental business “is very local in nature. It is perfectly obvious that Blockbuster’s closest competitor is Hollywood (Video), not Wal-Mart, not Netflix and not pay-per-view or video-on-demand,” said Page Todd, Movie Gallery’s general counsel.
“Everyone in L.A. and in the industry understands how everything has shifted to retail. … Our competition isn’t local. It’s retail, and it’s new technology,” Stead countered. “It would be unfortunate for consumers, the industry and Hollywood shareholders if the FTC tried to re-create a market that existed five years ago.”
In Thursday’s trading, shares of Blockbuster fell 1.52% to close at $9.08. Hollywood Video eased 0.29% to $13.85. Movie Gallery dipped 0.92% to $21.65.