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Big Blue Faces Hurdles to Hollywood Counter-Offer

18 Jan, 2005 By: Holly J. Wagner

John Antioco, Blockbuster

Blockbuster Video is still interested in acquiring rival Hollywood Video, but continues to face obstacles to making another offer, Blockbuster CEO John Antioco said today.

Both companies have been busy responding to information requests from the Federal Trade Commission (FTC), which is reviewing Hollywood's suitors to resolve antitrust questions.

Blockbuster offered to buy Hollywood for $11.50 per share, but Movie Gallery later came in with a $13.25-per-share bid, which Hollywood's board of directors approved. Movie Gallery is also seeking FTC clearance for its bid.

“We are disappointed that the special committee of Hollywood's board of directors elected to enter into a merger agreement with Movie Gallery without giving Blockbuster a fair opportunity to participate in the auction process,” Antioco said. “While it no longer makes sense at this time for Blockbuster to commence a tender offer at $11.50 per share in light of the Movie Gallery agreement, we are evaluating the price that Blockbuster would be willing to offer for Hollywood in light of various factors, including the termination fee to Movie Gallery that is included in the merger agreement.”

Just before Hollywood accepted Movie Gallery's offer, Blockbuster executives sent Hollywood a letter warning that a Movie Gallery offer that included a breakup fee if the deal falls through would be factored into any future bids Blockbuster might make. Executives have also complained that Hollywood executives were stonewalling with a demand for a three-year “standstill” agreement in exchange for opening the books to Blockbuster examination.

Antioco threatened last month to go directly to shareholders by the middle of this month, but from today's announcement it seems doubtful such an offer would come before February.

Investors seem to be waiting for a sweeter pot, however, as Hollywood shares closed up 13 cents, to $14.35, $1.10 per share above the price Movie Gallery has said it is prepared to pay. Blockbuster shares closed up 17 cents, to $9.65, while Movie Gallery's share price slipped 18 cents, to $20.47.

Meanwhile, regulators are scrutinizing both proposals for potential antitrust issues.

“Blockbuster is devoting significant resources to complying with this [latest information] request and anticipates that it will be in substantial compliance with the request by the first week of February. Blockbuster remains optimistic that it will complete the Hart-Scott-Rodino process by the end of February, if not earlier,” according to a company press release.

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