Blockbuster Inc. (BBI), the largest U.S. video rental chain, on Tuesday said it plans to launch a hostile bid for Hollywood Entertainment Corp. (HLYW) if the smaller rival will not cooperate with its $700 million takeover offer.

In the latest move in a long-running takeover saga, Blockbuster said it intends by mid-January to start a cash tender offer to buy Hollywood shares for $11.50 each if Hollywood's board refuses to negotiate a takeover.

Dallas-based Blockbuster in November bid $11.50 per share for Portland, Ore.-based Hollywood, its largest rival. This trumped a $10.25-per-share offer from buyout firm Leonard Green & Partners LP (search), which has the backing of Hollywood's chairman, Mark Wattles.

Movie Gallery Inc. (MOVI), the No. 3 U.S. video rental chain, has admitted it also made an offer for Hollywood to better position itself in a video rental business that is facing greater competition from online companies.

"The proposal Blockbuster is prepared to make is clearly in the best interests of Hollywood and Blockbuster shareholders as well as consumers," Blockbuster Chief Executive John Antioco said in a statement.

A purchase, he said, would help Blockbuster compete with the aggressive sale of DVDs by mass and online retailers, and the growing might of premium cable and satellite services.

A call to Hollywood for comment was not immediately returned.

Blockbuster said the proposed transaction would be valued at about $1 billion, including debt, and immediately boost profit per share and cash flow.

Blockbuster said Citigroup Global Markets Inc., Credit Suisse First Boston and J.P. Morgan are advising it on the transaction, and have committed to offer financing sufficient to complete the tender offer.