Blockbuster Offer for Rival Chain Is Rejected

Movie rental chain Hollywood Entertainment Corp.’s directors said no thanks Thursday to Blockbuster Inc.’s unsolicited bid, citing antitrust concerns. The company reiterated that it favored a merger instead with Movie Gallery Inc.

Hollywood Entertainment said Blockbuster’s offer “raises significant antitrust issues.” Blockbuster, the nation’s largest video chain, valued its bid at $1.3 billion, which included $350 million in debt it would inherit.

The announcement came as no surprise. The Wilsonville, Ore.-based chain has spurned Blockbuster’s overtures.

Dallas-based Blockbuster bid $14-a-share in cash and stock, compared to a $13.25-a-share offer from Movie Gallery, which is based in Dothan, Ala.

Movie Gallery said it was pleased with the decision, and continued to believe that Blockbuster’s bid would meet resistance from antitrust regulators. Its own proposal already has been cleared.

But Ed Stead, Blockbuster executive vice president and general counsel, called the antitrust concerns speculation that eventually would be answered by the Federal Trade Commission.

“This statement is of no consequence,” Stead said of Movie Gallery’s news release. “It says nothing. They have not even scheduled a date for a shareholders vote. We have the superior offer.”

Blockbuster has argued that the antitrust issues should be moot because video stores now face a broad group of competitors.

Discounters such as Wal-Mart Stores Inc. and Best Buy Inc. are major sellers of DVDs. It also faces competition from online video rental firm Netflix Inc.

But Movie Gallery’s general counsel disputed Blockbuster’s argument. “In the video-rental business the competition is very local in nature,” Page Todd said. “It is perfectly obvious that Blockbuster’s closest competitor is Hollywood, not Wal-Mart, not Netflix and not pay-per-view or video-on-demand.”

Separately, financier Carl Icahn reported in a Securities and Exchange Commission filing Thursday that he has raised his stake in Blockbuster’s Class A and Class B stock to 9.18% and 6.85%, respectively. Icahn has endorsed a Blockbuster-Hollywood Entertainment merger. He also owns stock in Hollywood Entertainment.

Shares of Blockbuster fell 14 cents to $9.08 on the New York Stock Exchange. Hollywood Entertainment closed down 4 cents to $13.85 and Movie Gallery slipped 20 cents to $21.65. Both are listed on Nasdaq.