Movie Gallery Trumps Blockbuster to Buy Hollywood

Movie Gallery will buy Hollywood Entertainment Corp. in a $1.2 billion deal, beating out Blockbuster Entertainment Corp.

Blockbuster had said it would issue a cash tender offer for outstanding shares of Hollywood stock in mid-January if the chain wasn't acquired before then (Dec. 29 Xtra).

The deal will make Movie Gallery the No. 2 rental chain with 4,500 stores. No. 1 Blockbuster has 8,900 stores.

Wilsonville, OR-based Hollywood had a deal pending with Carso Holdings Corp., an affiliate of merchant banking firm Leonard Green & Partners, whose retail investments include Petco Animal Supply, Rite Aid and The Sports Authority. Carso changed the terms of its offer in October, reducing its price-per-share to $10.25 from $14 per share, citing doubts that Hollywood could meet the financing conditions of the deal. A committee of Hollywood's board of directors began an auction Oct. 13 to find a better offer.

Dothan, AL-based Movie Gallery will pay $13.25 per share and assume $350 million in Hollywood debt; the $1.2 billion deal is expected to close in second-quarter 2005.

Hollywood operates 1,920 Hollywood Video superstores and 600 Game Crazy specialty stores. Movie Gallery has 2,475 stores, primarily in suburban and rural markets.

Hollywood will become a subsidiary of Movie Gallery and keep the Hollywood brand name. Each division will keep its current headquarters. Movie Gallery President-CEO Joe Malugen will remain as president-CEO of the combined company.