Third Suitor Joins in Bidding for Parent of Hollywood Video

Video rental company Movie Gallery Inc. became the third company to vie for Hollywood Entertainment Corp., claiming Friday that its offer was more likely to win antitrust approval than the $700-million bid made by industry leader Blockbuster Inc. last week.

Movie Gallery declined to say how much it was offering, but analysts speculated it would have to be at least $12.50 per Hollywood share -- or about $760 million -- to be competitive. Blockbuster is offering $11.50 a share, while Leonard Green & Partners, a Los Angeles buyout firm, is offering $10.25 a share.

“Blockbuster’s proposed acquisition would create a dominant player with significant competitive overlap in the vast majority of markets served by Blockbuster and Hollywood Entertainment,” Joe Malugen, Movie Gallery’s chairman and chief executive, said in a statement. “We do not believe regulators will adopt the expanded view of the market that Blockbuster needs to complete a transaction.”

Alex Bond, a senior vice president for Hollywood, had no comment.

Blockbuster said it remained confident that its bid was the best choice.

The offer sent Hollywood shares surging. They closed 85 cents higher at $12.53, while Movie Gallery’s shares slipped 5 cents to $17.48. Both are listed on Nasdaq. Blockbuster shares finished the day down 37 cents at $8.05 on the New York Stock Exchange.

Blockbuster is the nation’s largest video rental chain, followed by Hollywood Entertainment, known by its Hollywood Video stores, and then Movie Gallery.

In 1999, a plan to rename Hollywood stores under the Blockbuster banner was stopped by the Federal Trade Commission, but analysts say a merger of the two largest movie-rental firms stands a better chance today.

“Blockbuster has $4 billion of the home entertainment market and Hollywood has around $2 billion -- that’s $6 billion, which is 20%” of the market, said Michael Pachter, research analyst with Wedbush Morgan Securities in Los Angeles. “And since Cingular and AT&T; just combined at over 20%, there is an analogy.”

Movie Gallery, based in Dothan, Ala., has about 2,200 rental stores in mostly rural areas of the U.S. and Canada, and Dallas-based Blockbuster has about 9,000 outlets worldwide, mostly in urban and suburban hubs.

In March, Hollywood agreed to merge with Leonard Green in a deal that allowed the Wilsonville, Ore.-based company to solicit competing proposals.

Blockbuster last week offered $11.50 a share for Hollywood’s more than 1,920 video stores and 600 Game Crazy locations.