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Icahn Buying, Wattles Selling Hollywood Stock

1 Apr, 2005 By: Erik Gruenwedel

Mark Wattles

With about three weeks before Hollywood Video shareholders vote whether to approve Movie Gallery's $13.25 per share, $850 million merger offer, corporate raider Carl Icahn, through subsidiary holding companies, has purchased 1 million shares of Hollywood common stock.

The stock purchases March 31 for $13.15 per share made Icahn Hollywood's largest shareholder, with more than 6.9 million shares, or 10.84 percent of the company, according to filings with the Securities and Exchange Commission.

The action pushed Hollywood's stock up 10 cents per share, to $13.27, Friday in heavy trading. After-hour activity dropped the gain 2 cents per share.

Analysts appeared perplexed by Icahn's stock purchases considering he stood to make little more than pennies per share on his investment.

“There are no minority [shareholder] rights laws in Oregon that would seem to do anything for him,” said independent retail analyst Dennis McAlpine with McAlpine Associates in Scarsdale, N.Y. “Maybe if he gets enough pennies, he gets a dollar.”

Analyst Michael Pachter, with Wedbush Morgan Securities in Los Angeles, said he believed Icahn might try to hold up Gallery's bid by bumping up the share price.

Pachter said Icahn could achieve this by tendering to buy the whole company in a move similar to Wattles' aborted attempt last year to take Hollywood private.

“He [could] make a better offer … for $13.50 or $14 [per share] unless Movie Gallery wants to pay him more,” Pachter said.

Icahn, who gave no reason in the filings for the stock purchases, was not immediately available for comment.

Icahn's purchases followed Hollywood founder and former chief executive Mark Wattles' announcement he might sell his remaining stake in the company before the shareholder meeting April 22.

Last week, Wattles sold 2.15 million shares of Hollywood stock, from March 22 to March 24, for $14.07 to $14.15 per share.

The sales marked a turnaround for Wattles, who, in the days prior to Blockbuster's March 24 deadline for Hollywood shareholders to act upon its $14.50-per-share hostile bid, announced interest in buying up to 50 percent of Hollywood stores in an apparent desire to assist Blockbuster's efforts.

The next day, Blockbuster officially terminated its tender offer for Hollywood.

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