Blockbuster Entertainment Inc. (BBI) said Friday it is dropping its bid for smaller rival Hollywood Entertainment Corp. (HLYW), which had resisted its overtures in favor of a lower offer from another video rental company.

Hollywood Entertainment, the No. 2 player in the industry after Blockbuster, had opposed the deal because of likely regulatory opposition. The Hollywood board has recommended that shareholders accept a buyout offer from Movie Gallery Inc. (MOVI), the third biggest in the industry.

Blockbuster said Friday its offer to acquire all of Oregon-based Hollywood's shares for $14.50 in cash and stock had expired and would not be extended.

"Our decision not to extend our offers was reached after a careful review of all of the available facts and circumstances," John Antioco, chairman and CEO of Blockbuster, said in a statement.

Earlier this month, a Blockbuster official had said after a meeting with Federal Trade Commission (search) officials that the agency was likely to try blocking Blockbuster's proposed purchase of Hollywood on antitrust grounds.

The FTC was examining whether a merger of the two largest U.S. movie-rental companies would give the combined company too much power over pricing. The FTC scuttled a Blockbuster-Hollywood deal in 1999 on similar grounds.

In his statement, Antioco said among Blockbuster's reasons for ending its pursuit of Hollywood were "Hollywood's recent public filings and the unlikely resolution of our request for regulatory clearance on an acceptable timetable."

"Given the current circumstances, in our judgment it is not in Blockbuster's best interest to continue to pursue the acquisition," he said.

Dallas-based Blockbuster said it will promptly return any shares that had been tendered under its offer.

Blockbuster had offered $14.50 per share in cash and stock. Hollywood's board backed a sale to Movie Gallery, based in Dothan, Ala., for $13.25 per share in cash because that deal has received FTC approval.