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Movie Gallery Gets Hollywood Board Blessing

17 Feb, 2005 By: Holly J. Wagner

Movie Gallery has now cleared two hurdles in its proposed acquisition of Hollywood Entertainment Corp.

A special committee of Hollywood Video's board of directors gave its blessing to the sale today, clearing the way for a shareholder vote. At the same time, the committee recommended against Blockbuster's offer of $11.50 per share and $3 cash, citing uncertainty that a Hollywood-Blockbuster combination would pass regulatory muster.

Movie Gallery issued a statement saying: “We are pleased that Hollywood's board of directors has rejected the exchange offer proposed by Blockbuster and reaffirmed its recommendation that Hollywood shareholders vote to approve the merger with Movie Gallery. We concur with its recommendations, and we continue to believe that our pending merger is the best option for Hollywood's shareholders, employees and customers.”

The committee also noted its concern that Blockbuster's offer “may be in part designed to disrupt the merger with Movie Gallery and harm Hollywood's business as much as it was designed to be a real offer for Hollywood.”

Blockbuster did not respond to a request for comment by press time.

The committee recommendation came after the Federal Trade Commission (FTC) waiting period for Movie Gallery' $13.25-per-share bid for Hollywood expired Feb. 11.Committee members weren't the only ones skeptical about Blockbuster winning FTC clearance.

Analyst Dennis McAlpine, of McAlpine & Associates, recommended in a Feb. 15 note that Hollywood shareholders sell their shares on the open market rather than wait for a better offer from Blockbuster. He noted shares are already north of $14 on the Blockbuster bid but could fall if it doesn't get regulatory approval.

“We remain dubious that Blockbuster will be passed through this stop,” McAlpine wrote. “As a result, we suggest that Hollywood holders should sell their stock in the open market.… Remember the adage about birds in the hand and all that? Why take the risk that the Blockbuster bid does not gain regulatory approval?”

Meanwhile, Blockbuster issued an offer to buy up $225 million of Hollywood's long-term debt in the form of notes due in 2011.

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