Nothing heats up the dead of winter like a good video — or a good takeover battle.
Vidchain giant Blockbuster threatened Tuesday to launch a $1 billion, all-cash hostile takeover of Hollywood Entertainment next month unless the smaller competitor agrees to friendly merger talks.
Blockbuster had previously offered $11.50 a share for the rival rental chain but made little headway. It reiterated Tuesday that it would consider sweetening the bid “if Hollywood’s board cooperates and if the financial and other information sought from Hollywood support such an increase.” Blockbuster said it hasn’t been given access to crucial data from Hollywood, which has shut its books and refused to negotiate.
That’s because Hollywood has inked another, lower offer — one for $10.25 a share from its own chairman-CEO, Mark Wattles, backed by Los Angeles buyout firm Leonard Green & Partners. That deal would leave current management in place.
Blockbuster’s strong-arm tactics come several weeks after billionaire corporate raider Carl Icahn revealed that he had become the single largest shareholder in Blockbuster and Hollywood Entertainment and that he favors a merger of the two.
Blockbuster’s $1 billion offer is worth $700 million in cash plus the assumption of $300 million in debt.
If Hollywood Entertainment won’t play ball, Blockbuster said it will commence a cash-tender offer in mid-January to purchase Hollywood’s outstanding shares — meaning it will go directly to the market and offer all outstanding shareholders $11.50 in cash to hand over the stock.
While the bid offers a substantial premium vs. the Leonard Green/Wattles deal, it’s still a hefty discount to Hollywood’s current stock price, which has been buoyed for months by takeover speculation. Shares closed up another 0.38% on Tuesday at $13.14 — a 44% spike from a 52-week low of $9.11.
Blockbuster shares eased 0.64% to $9.33 on Tuesday.
“We believe that the proposal Blockbuster is prepared to make is clearly in the best interests of Hollywood and Blockbuster shareholders as well as consumers,” Blockbuster chairman-CEO John Antioco said in a statement. He added that the combo will better position Blockbuster to compete in the rapidly changing home entertainment marketplace.
The vidchain is putting together its funding for the tender offer and has received a financing commitment from JPMorgan, Credit Suisse First Boston and Citigroup. All three are acting as financial advisers in the transaction.
Blockbuster said it doesn’t anticipate regulatory hurdles for the deal that would merge the nation’s Nos. 1 and 2 video rental chains, given the fierce competition that’s assailed the industry. An expanded Blockbuster would control just under half of the $8 billion a year rental market.
“In recent years, the home entertainment landscape has broadened considerably. Blockbuster today faces strong competitive challenges from the aggressive sale of DVDs by mass merchants and online retailers, as well as increasing penetration by premium cable and satellite services,” Antioco said, also citing video-on-demand and computer downloading.
Blockbuster, which was recently divested by former parent Viacom, has revamped its stores and merchandise mix. It started offering flat-fee, monthly online subscriptions and recently cut the price on that program to $14.99 a month — undercutting pioneer Netflix’s equivalent service. Earlier this month, vidchain announced it would eliminate late fees at all U.S. company-operated stores, starting Saturday.
Blockbuster’s move is the latest in a long-running takeover saga involving Hollywood. The No. 2 video chain agreed in March to be bought by Leonard Green for $14 a share, $880 million. It later slashed its offer to $10.25 a share, about $645 million, citing financing challenges.
Reps from Hollywood Entertainment and Leonard Green & Partners weren’t immediately available to comment.
The No. 3 video rental chain, Movie Gallery, made an undisclosed bid for Hollywood Entertainment in November. Bid is said to be somewhere between the Leonard Green & Partners and the Blockbuster offers.