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November 22, 2004

Competition for Hollywood

On the heels of Blockbuster's offer to acquire Hollywood Entertainment Corp., Movie Gallery has announced its intentions to pursue the video rental company. Movie Gallery claims that its proposal is “superior” to that of Blockbuster and argues that unlike an attempted merger with Blockbuster, a deal with them would be possible.


In making its bid, Movie Gallery told Hollywood that their deal with Blockbuster would be in violation of antitrust laws. According to the Wall Street Journal, Movie Gallery believes that because 85% of the Hollywood stores in urban markets are within 5 miles of a Blockbuster store, antitrust regulators would not approve the deal.  However, Blockbuster claims that the deal would survive antitrust scrutiny because the combined company would only have a 20% share of the home video market when including mass and internet retailers.

Since Movie Gallery is only one-third the size of Blockbuster, to match Blockbuster's offer Movie Gallery would have to take debt of more than 5.5 times its earnings before interest, taxes, depreciation, and amortization.

The market reacted with little enthusiasm for the deal on Friday with Hollywood shares increasing 7.3% but both Movie Gallery and Blockbuster falling.

Posted by Quentin Johnson at 05:57 AM in Alliances | Permalink


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