Follows B'buster offer for No. 2 vid chain

NEW YORK — Mark Wattles, chairman-CEO of highly sought-after Hollywood Entertainment, abruptly ankled the company Thursday — a day after giant Blockbuster said it plans to launch a $14.50-a-share hostile tender offer for its smaller rival.

Hollywood said Blockbuster’s offer is being considered by a special board committee, which will release a statement on or before Feb. 17. Company said the committee could advise shareholders to accept or to reject the offer or could decline to take a position. It advised its stockholders not to tender their shares “until they have been advised as to Hollywood’s position on the matter.”

Blockbuster said the offer would run through March 11, although it may be extended. It’s seeking to snatch Hollywood Entertainment from the arms of No. 3 vidtailer Movie Gallery, which last month inked a deal to acquire Hollywood for $13.25 a share.

Hollywood Entertainment’s board appointed F. Bruce Giesbrecht, Hollywood’s chief operating officer and a board member, to replace Wattles as CEO.

Comments from Gallery

Movie Gallery, which has been largely silent, weighed in Thursday. While not offering to raise its bid, company insisted that its “pending merger is better for Hollywood’s shareholders, employees and customers than the Blockbuster offer,” which could face substantial antitrust hurdles.

“More than 80% of Hollywood’s stores are in the same local market as a Blockbuster store. As a result, the viability of Blockbuster’s offer depends on antitrust regulators accepting an untested expanded market theory proposed by Blockbuster. By contrast, relatively few Movie Gallery stores are located close to a Hollywood store,” the company said.

“Movie Gallery anticipates a straightforward regulatory approval process for its transaction with Hollywood. Because of the Federal Trade Commission’s investigation and second request process related to Blockbuster’s proposal, there is likely to be further regulatory delay in the Blockbuster transaction and substantial risk that it will not be approved at all,” it added.

Company noted that its offer is all cash. Blockbuster is offering $11.50 a share in cash and $3 worth of Blockbuster stock.

Rejected in past

Hollywood, which is based in Wilsonville, Ore., has rejected Blockbuster’s advances over the past several months, including an offer of $11.50 per share in cash. Blockbuster had said it would likely raise the offer if Hollywood would come to the table to negotiate.

On Wednesday, Blockbuster chairman-CEO John Antioco said, “We believe this transaction will provide tremendous value to both Blockbuster and Hollywood shareholders and should better position Blockbuster to compete in the rapidly changing home entertainment marketplace.”

Blockbuster filed for antitrust approval for the Hollywood merger in December. Subsequently, Blockbuster received a request from the FTC for more information.

Blockbuster argues that it and Hollywood would have a 20% share of the homevideo market — when the definition of the market is broadened to include mass merchants and Internet retailers.

More competition

With the vidtailing biz now including retailers such as Wal-Mart, video-on-demand services and upstart competitors like Netflix, Blockbuster has taken aggressive steps in recent months to preserve its market — launching an online mail-order service to compete with Netflix and virtually abolishing late fees.

Movie Gallery, based in Dothan, Ala., is the third-largest company in the specialty video retail industry based on revenues and the second-largest in the industry based on stores. Company owns and operates 2,482 stores located primarily in the rural and secondary markets throughout North America.

Blockbuster has about 9,000 stores worldwide, with about 5,500 in the U.S. Hollywood Entertainment has 1,920 stores.

Thursday’s market action reflected the shifting fortunes of the main players: Blockbuster shares jumped nearly 4% to $9.77, while Movie Gallery stock slipped 2.12% to $20.80.

Shares of Hollywood Entertainment nosed up 0.84% to $14.37.

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