Movie Gallery topper rips Blockbuster bid

Tough stance buoys shares by 10%

Movie Gallery CEO Joe Malugen on Friday lashed out at Blockbuster, calling its larger rival’s hostile and competing bid for Hollywood Entertainment “illegitimate” and “purely fictional.”

During an earnings call, Malugen reported a downturn in profits for Movie Gallery during the final quarter of 2004, but said the No. 3 vidtailer remains confident its offer for Hollywood would prevail.

Movie Gallery shares were buoyed in trading by Malugen’s tough stance. Shares were up $2.31 to close at $25.45, a hefty 10% hike.

Washington antitrust watchdogs have already approved Movie Gallery’s plan to buy up Hollywood for $13.25 a share, but Blockbuster has refused to stand down.

Malugen said the Federal Trade Commission is primed to seek an injunction stopping Blockbuster’s $14.50-a-share hostile bid.

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But Blockbuster says it won’t be deterred by the FTC.

“We’re going ahead. It’s up to (the FTC) to file an action to stop us,” Blockbuster executive VP-general counsel Ed Stead said recently.

Malugen said Movie Gallery would not raise its bid for Hollywood.

“We signed a confidentiality agreement with Hollywood’s special committee, and they asked us to submit our best and final offer, and that’s what we did,” he said.

The Movie Gallery deal must still be approved by Hollywood’s shareholders, a process that has been slowed by a delay in the companies filing their respective 10-K annual reports with the Securities and Exchange Commission.

The merger agreement is slated to expire May 1. It typically takes about 30 days for proxy statements to be mailed to shareholders and for their votes to be collected.

In the last quarter, earnings at Movie Gallery fell to $11.4 million from $17.5 million during the final quarter of 2003.

Movie Gallery said profits were impacted by an accounting change for leases and equity losses.

Vidtailer’s revenues rose to $208.4 million from $195.5 million.