NEW YORK – Blockbuster Inc. (BBI) Wednesday launched a hostile $991.6 million offer to acquire smaller rival Hollywood Entertainment Corp. (HLYW), escalating a two-way takeover battle for the video rental chain.
Blockbuster, the No. 1 U.S. video rental chain, said it would initiate a tender offer Friday directly offering Hollywood shareholders $14.50 per share in cash and stock for each share they own.
By bypassing Hollywood's board, which has repeatedly rebuffed Blockbuster's takeover advances, and going directly to the Portland, Ore.-based company's shareholders, Blockbuster is hoping to gain traction in a takeover battle that has raged for nearly five months now.
Analysts said the Dallas-based company covets Hollywood because combined, the two video rental chains would boast significant scale to help combat growing competition from online services to convenience stores.
Blockbuster's new bid represents a slight premium over the company's closing price of $14.25 per share Wednesday, and a 9.4 percent premium to the $850 million, or $13.25 per share, buyout offer from No. 3 rental chain Movie Gallery Inc. (MOVI), which Hollywood accepted last month.
Blockbuster would also assume roughly $350 million of Hollywood's debt, giving the deal an enterprise value of more than $1.3 billion.
A Blockbuster spokesman did not immediately return a call to clarify the discrepancy. Hollywood also did not immediately return a call seeking comment Wednesday.
Blockbuster said its offer consists of $11.50 per share in cash and $3 per share in stock. It will formally be offered to shareholders beginning on Friday, Feb. 4 in an offer expiring at midnight on March 11.
"We believe this transaction will provide tremendous value to both Blockbuster and Hollywood shareholders, and should better position Blockbuster to compete in the rapidly changing home entertainment marketplace," John Antioco, Blockbuster's chairman and chief executive said.
Blockbuster previously had offered Hollywood's board $11.50 per share to acquire the company, and indicated it might be willing to pay more if it could review the company's books without signing a "standstill agreement" that would have restricted its ability to make a hostile bid.
Hollywood, meanwhile, is already engaged to its second suitor. It agreed in March to be acquired by private investment firm Leonard Green & Partners LP (search) for $14 per share in cash, an offer that was later slashed to $10.25 per share in October.
That attracted the interest of Blockbuster and Movie Gallery, which struck its deal in January. That agreement carries a $27 million break-up fee.
The ongoing battle has even attracted billionaire investor Carl Icahn, who at one point purchased more than 5 percent of both Blockbuster's and Hollywood's stock, then said he supported a merger with Blockbuster.