NEW YORK — The video rental biz took a stormy, springtime ride on Wall Street Monday as investors absorbed news that Blockbuster’s hostile takeover bid of nearest rival Hollywood Entertainment is a bust.
Blockbuster and Hollywood shares both took a dive in trading, while vidtailer Movie Gallery — whose offer for Hollywood now seems assured — saw its shares soar by a whopping 22.4%.
Also benefiting in trading was online movie rental operation Netflix, whose shares jumped 8.31%.
Wall Streeters said the market was recognizing that a Movie Gallery-Hollywood merger would result in a strong stock.
Analysts also dismissed suggestions that the vidtailer business is a dying breed, endangered by the boom in DVD sales and the emerging video-on-demand market. “I think the future of the business is just fine,” said Anthony DiClemente, a Lehman Bros. analyst.
“Also, the fact that you have more consolidation is likely to further the stability of that industry. As a bigger corporation, Movie Gallery and Hollywood Entertainment are going to have more in the way of a cushion,” DiClemente said.
Spooked by Washington antitrust concerns, Blockbuster decided at the beginning of the long Easter weekend to walk away from its hostile offer for Hollywood.
The Federal Trade Commission, which has already cleared Movie Gallery’s marriage proposal, had made clear its concerns that a Blockbuster-Hollywood merge could result in local monopolies and hence, higher rental prices.
Hollywood shareholders are skedded to vote April 22 on Movie Gallery’s $13.25 a share offer.
Even with the Movie Gallery-Hollywood nuptials, Blockbuster will remain the country’s largest movie and game rental chain, with roughly 5,500 locations; a combined Movie Gallery and Hollywood will operate roughly 3,920 locations, with annual revenue of $2.6 billion.
Movie Gallery and Blockbuster have markedly different business blueprints. Looking to re-energize its business, Blockbuster has planted a stake in the online rental biz and eliminated its traditional late fee structure at all retail locations.
Conversely, Movie Gallery remains very much a bricks-and-mortar operation.
Billionaire corporate raider Carl Icahn recently increased his stake in both Blockbuster and Hollywood, triggering speculation that he wanted that marriage pushed through. Insiders say Icahn isn’t opposed to a Movie Gallery-Hollywood merger and that he remains confident Blockbuster will remain viable as a stand-alone business.
In trading Monday, Movie Gallery shares closed up $5.39 at $29.45. Blockbuster shares closed down 54% at $8.92, while Hollywood shares dipped 93% at $13.20. Netflix shares closed up 75% at $9.78.
Wall Street analysts predict that the Movie Gallery-Hollywood merger could see a stock price of $33 per share.