Hollywood Entertainment Corp. said it will buy Reel.com Inc. for $100 million in cash and stock as the second-largest U.S. video rental chain expands its business onto the Internet.
Hollywood Entertainment, which operates the Hollywood Video chain, will issue about 5 million shares, or about $70 million in stock, and $30 million in cash to Reel.com shareholders.
The transaction gives Hollywood Entertainment the edge on Internet video sales over No. 1 video retailer Blockbuster Entertainment Group. Just 14 months old, Reel.com is the leading Internet video retailer, with about 2% of the more than 200,000 visitors a day making a purchase, the companies said.
“We view the Internet as the place in which people will ultimately make their decision of what they want to watch,” Hollywood Chairman and Chief Executive Mark Wattles said.
An investment group led by Scott Beck, former chief executive of Boston Market and former vice chairman of Blockbuster Entertainment, will also buy 5 million shares for $13.50 a share, or about $67.5 million, in Hollywood Entertainment.
The purchase, expected to be completed within 30 days, won’t add to earnings for several quarters, the companies said.
Shares of Portland, Ore.-based Hollywood Entertainment fell 50 cents to close at $16 on Nasdaq.