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Wattles Looking to Buy Up to 50 Percent of Hollywood Stores

22 Mar, 2005 By: Erik Gruenwedel

Mark Wattles

Hollywood Video founder and former chief executive Mark Wattles has apparently not left the video rental business.

In a letter to Blockbuster chairman and CEO John Antioco and members of a special committee of Hollywood's board overseeing acquisition offers from Movie Gallery and Blockbuster, Wattles said he and a group of unnamed investors were prepared to “move very quickly” in acquiring up to 50 percent of Hollywood store locations that are “most competitive with Blockbuster.”

Las Vegas-based Wattles said such a move would better facilitate Blockbuster's $14.50-per-share takeover bid of Hollywood in the eyes of the Federal Trade Commission.

Wattles remains the largest Hollywood shareholder, with more than 6.1 million shares.

In his letter, Wattles made no mention whether his proposed Hollywood store acquisitions would remain under the Hollywood logo or another name, including Ultimate Electronics, the Denver-based retailer of home entertainment and consumer electronics to which he recently was named chairman and CEO.

Earlier this month, the FTC filed a motion in federal court seeking to bar Blockbuster's bid due to “incomplete” and “deficient” responses the agency had sought related to pricing and late fees, among other requirements.

Hollywood's special committee has separately approved Gallery's 13.25 per share, $1.2 billion cash offer.

A Blockbuster spokesperson declined comment; a Gallery representative was not immediately available for comment.

Wattles said he has retained corporate counsels in Los Angeles and Washington, D.C., to advise him on FTC issues, as well as a Dallas-based financial adviser to assist in negotiations and structural matters.

Media analyst Marla Backer with Research Associates – Soleil Securities in New York said Wattles' proposal was a clever way of circumventing FTC concerns while maintaining an active role Hollywood's future.“I'm not surprised to see [Wattles] say that he is interested in buying the stores,” Backer said. “Having another potential buyer in the mix might make it more appealing [to the FTC]. I think it makes a lot of sense.”

Retail analyst Dennis McAlpine countered that there was little likelihood of Blockbuster agreeing to such an arrangement or the FTC softening its stance.

“Do you believe in the Easter bunny?” McAlpine said.

McAlpine questioned why Blockbuster would be interested in establishing another competitor in Wattles' stores. He said the prospect of two Hollywood owners makes little sense.

“He wants to try an get something out of this,” McAlpine said. “He's trying to barter a deal, and he can't get one.”

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