Blockbuster Threatens Hostile Hollywood Bid28 Dec, 2004 By: Erik Gruenwedel
As expected, Blockbuster today said it would submit by mid-January an $11.50 per share cash offer for all outstanding Hollywood Video stock if the No. 2 video chain's board of directors doesn't begin negotiating in good faith.
Such a move would make the value of Blockbuster's transaction, including Hollywood's debt, at approximately $1 billion.
Earlier this month, Blockbuster said attempts to introduce a potentially higher share offer had met resistance from Hollywood.
Separately, No. 3 video chain Movie Gallery has submitted a stock offer for Hollywood that is said to rival Blockbuster's initial $700 million bid.
Under a confidentiality agreement, Blockbuster had requested access to Hollywood's books — a request Hollywood reportedly was reluctant to address unless Blockbuster agreed to a “standstill requirement.” Under such a requirement, Blockbuster would be prohibited, among other things, from circumventing Hollywood's board with an offer — sometimes referred to as hostile — directly to shareholders.
Hollywood claimed it is bound to a “standstill” provision — common in mergers and acquisitions — due to its existing $10.25 per share merger agreement with Leonard Green Partners and Hollywood founder and CEO Mark Wattles.
Blockbuster has refused to sign such an agreement.
“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,” said John Antioco, Blockbuster chairman and CEO. “Additionally, as we have said before, we believe the proposed transaction will better position Blockbuster to compete in the rapidly changing home entertainment marketplace.”
Antioco said merging with Hollywood is paramount due to aggressive sellthrough of DVD by mass merchants, online retailers and competition from video-on-demand and computer downloading. Last week, Blockbuster reduced its online rental fee from $17.99 to $14.99, and eliminated all late fees at company-operated retail stores effective Jan. 1.
The No. 1 video rental chain's tender offer would be subject to a number of federal and state regulations excluding Hollywood's existing merger agreement with Green.
Blockbuster's financial filibuster should be hedged upon what exactly is in Hollywood's books, says retail analyst Dennis McAlpine with McAlpine and Associates in Scarsdale, New York.
“If you are Blockbuster, you have to be concerned because Leonard Green came in with a $14 per share offer, looked at the books and reduced it to $10.25,” McAlpine said. “What was in those books that Leonard Green didn't know?”
That said, a hostile takeover would probably bode well for Hollywood's stock.
“It is definitely better than $10.25, and Hollywood doesn't have enough shares to block it,” McAlpine said. “If the directors stick with Leonard Green, you can almost rest assured there would be a number of shareholder lawsuits, including [one from] Blockbuster.”
Representatives from Green, Movie Gallery and Hollywood were unavailable for comment.