FTC extends review of Blockbuster offer

FTC extends vidtailer merger review

WASHINGTON — Blockbuster and the Federal Trade Commission struck a deal Wednesday to extend the agency’s review of the vidtailer’s proposed acquisition of rival Hollywood Video until March 21.

The 11th-hour pact headed off a legal showdown but leaves hanging the ultimate question of whether the feds will approve Blockbuster’s $14.50-per-share hostile bid for Hollywood.

Proposed marriage raises antitrust concerns since it would unite the country’s two largest video rental chains

Last week, the FTC filed a complaint in federal district court charging Blockbuster with failing to provide information requested by the agency as part of the mandatory 30-day review period for proposed mergers.

The complaint sought to enjoin Blockbuster from proceeding with its hostile tender offer for Hollywood’s shares, which was slated to close Friday. A court hearing scheduled for today has been called off, and the closing date for the Hollywood deal has been pushed back to March 24.

If the FTC’s answer is favorable, Blockbuster will go ahead with its bid. If not, the two are likely to end up back in court.

“We believe in the merits of our argument, but if (the FTC doesn’t) then we look forward to a hearing on the merits,” Blockbuster CEO John Antioco told Daily Variety.

FTC officials had no comment.

Hollywood has already reached a friendly agreement to be bought by Movie Gallery for $13.25 a share.

The merger with Movie Gallery has been approved by the FTC and is awaiting endorsement by the Securities and Exchange Commission before going to Hollywood shareholders for a final vote. SEC approval could come at any time, which would likely be followed by a shareholder vote within 20 to 30 days.

Quarterly earnings

Also on Wednesday, Blockbuster announced its earnings for the last quarter. Company posted better-than-expected results, fueled by strong growth in its online rental business.

Total revenue for the quarter jumped 6.3% over the same period in 2003 to $1.72 billion.

Net income for the quarter was $900,000, including noncash charges for stock-based compensation. Excluding those charges, adjusted net income was $12.3 million, or 7¢ a share.

That reverses a huge loss in the same period last year of $1.19 billion, $6.57 a share, which included a $1 billion noncash charge for impaired good will. Excluding that charge, net income for fourth-quarter 2003 was $58.0 million, 32¢ a share.

For all of 2004, revenue grew 2.4% to $6.05 billion. Net loss for the year was a whopping $1.26 billion, including several significant noncash charges. Excluding those charges, adjusted net income was $138 million, compared with $267.8 million last year.

While in-store rentals continue to be soft, Antioco said Blockbuster Online subs have topped 750,000, well ahead of the company’s goal of 500,000 by the end of last year.

Company plans to spend $120 million to push online rentals in 2005, more than double the $50 million spent in 2004.

That’s certain to keep the heat on Netflix, which has 2.6 million rental subs.

Shares of Blockbuster closed up more than 8% Wednesday to $9.44. Netflix shares were off 1% to $10.01.

The rapid shift from over-the-counter rentals to monthly subscriptions is causing some friction with the studios, Antioco noted.

“Clearly, with subscriptions, our revenue per customer goes up. But the average fee they pay per movie goes down. That’s the rub that we have to bridge with the studios,” Antioco said.

He added that higher overall rental revenue will benefit Blockbuster and the studios in the long run.

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