Hollywood-Gallery merger won't deter buyer

NEW YORK — Blockbuster made it abundantly clear Tuesday that it’s willing to up its offer for Hollywood Entertainment — confirming the belief of many Wall Streeters that the No. 1 vidtailer will ultimately win the hand of its smaller rival.

Blockbuster chair-CEO John Antioco said the company remains “committed” to buying Hollywood despite last week’s merger agreement between Hollywood and the market’s No. 3 player, Movie Gallery.

Antioco said Blockbuster is mulling another offer that would include paying the hefty $27 million termination fee to which Movie Gallery would be entitled if Hollywood gets a fatal case of wedding jitters.

Antioco said his company was disappointed that a special committee of Hollywood’s board opted to greenlight the $850 million buyout offer from Movie Gallery without giving Blockbuster a chance to participate in the auction.

“I think Blockbuster will get it. They’ll pay $14.50, $15, $16, and it would still be a good deal for them,” one fund manager predicted. He agrees with Blockbuster execs that cost savings between the two far outweigh any advantages of a Movie Gallery deal.

Movie Gallery is offering $13.25 a share, while Blockbuster has so far offered $11.50 a share.

Blockbuster previously said it might take its case straight to the market and launch a public tender offer for Hollywood Entertainment stock, but Antioco said Tuesday that a hostile takeover bid for Hollywood doesn’t make sense at this point.

News that Blockbuster wants to sweeten the pot was not unwelcome on Wall Street: Blockbuster shares closed up 17¢ at $9.65, while Hollywood closed up 13¢ at $14.38.

Movie Gallery shares closed down 19¢ at $18.47.

Billionaire corporate raider Carl Icahn is pushing for the wedding of Blockbuster and Hollywood, revealing late last year that he has bought hefty stakes in both companies.

The vidtailer biz is suffering an identity crisis thanks to online rival Netflix and the emergence of enhanced digital cable services such as video-on-demand.

A Hollywood-Movie Gallery marriage would give the beefed-up video rental chain roughly 4,500 stores nationwide. Still, the merged company would trail far behind Blockbuster, which operates 9,000 stores.

Should Blockbuster make a winning bid for Hollywood, one obstacle could prove to be regulatory approval from Washington, considering the size of the new chain.

Deals often carry a premium for regulatory risk, which means Blockbuster may have to offer even more.

Blockbuster also announced in Tuesday’s statement that antitrust regulators in Washington have asked for more information regarding its proposed acquisition of Hollywood.

Company said it is “devoting significant resources” to complying with this request and that it hopes to complete the merger review process by the end of February.

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