Jump to content



Sign up for a free account to remove the pop-up ads

Signing up for an account is fast and free. As a member you can join in the conversation, enter contests and remove the pop-up ads that guests get. Click here to create your free account.

Photo

Blockbuster buying Hollywood Video?


This topic has been archived. This means that you cannot reply to this topic.
No replies to this topic

#1 of 1 OFFLINE   TonyD

TonyD

    Executive Producer



  • 16,244 posts
  • Join Date: Dec 01 1999
  • Real Name:Tony D.
  • LocationDisney World and Universal Florida

Posted November 11 2004 - 10:42 AM

link, free reg is required.

"One Store to Rule Them All!"


----NOV. 11 | In the face of sharp declines in its core over-the-counter rental business, Blockbuster Video is making overtures to acquire its number one rival Hollywood Video.

The surprise move comes as Hollywood is attempting to finalize a management-led buyout backed by investment firm Leonard Green & Partners. In an announcement last month, however, Hollywood said its revised merger agreement with LG&P allowed the company to solicit bids from "other interested acquires," giving Blockbuster the opening it needed.

In a statement, Blockbuster said it has contacted Hollywood's investment bankers, as well as the company itself, to express interest in acquiring Hollywood for $11.50 per share, a 12% premium over Hollywood's current $10.25 per share agreement with LG&P.

The proposed deal values Hollywood at about $700 million, but the total value of the transaction would be about $1 billion including the assumption of $300 million in Hollywood debt, the company said.

"Blockbuster's expression of interest has been communicated to Hollywood Entertainment but has not yet resulted in a substantive discussion regarding the terms of a potential transaction," the statement said.

The statement did not say how an offer for Hollywood would be structured, but it would likely be an all-cash deal. Although Blockbuster recently took on slightly more than $1 billion in debt to finance a special dividend related to its split off from Viacom, its balance sheet is still relatively unleveraged in regard to its cash flow.

Despite a recent slump in earnings, moreover, Hollywood remains cash-flow positive, which would help service any new debt Blockbuster took on to finance the transaction.

If a deal were to happen, it would create a giant chain of nearly 7,000 stores in the U.S. that would control nearly 50% of the video rental market.

It would come at a time, however, when video rental stores are facing significant competitive threats from the sale of low-priced DVDs through mass merchant channels, online services and the rollout of advanced video-on-demand technologies.

"We believe this proposed transaction better positions Blockbuster to compete in the rapidly changing home entertainment marketplace, while simultaneously benefiting consumers as well as Blockbuster and Hollywood Entertainment shareholders," Blockbuster chairman and CEO John Antioco said. "In addition to providing Hollywood shareholders with a substantial premium for their shares, the proposed transaction would give us more ways to serve more customers by taking advantage of both companies' combined store distribution capabilities and brand portfolios."

News of Blockbuster's interest sent shares of Hollywood up nearly 11% in early morning trading Thursday.

Blockbuster shares also were up sharply, suggesting Wall Street would greet a deal between the companies warmly.

Some analysts were skeptical of the proposal, however.

"I'm not sure what they'd be buying," McAlpine Associates principal Dennis McAlpine said. "The video rental business is pretty much a store-by-store business. Whether you have 5,000 stores or 6,000 stores, you don't get a lot of economies of scale in terms of operations."

McAlpine also noted that about 25% of Hollywood's 1,900 stores are located adjacent to Blockbuster locations, which could complicate any integration plans.

"I don't know what you would do with those stores," he said. "I think we can assume their landlords aren't going to let them out of those leases. So, do you convert them to Blockbuster locations and then have a Blockbuster next to another Blockbuster? Or do you continue to operate under two brand names?"

Operating under two distinct brand names, however, could allow Blockbuster to expand the number of titles it offers by shifting Hollywood's inventory mix away from its current emphasis on new releases, particularly in those stores located next to Blockbuster outlets.

An expanded retail inventory also would benefit Blockbuster's recently launched online subscription service once it's fully integrated with the store-based inventory.

In a third-quarter earnings conference call, Antioco noted that about 40% of online orders are for titles not typically stocked in Blockbuster or Hollywood stores.

The Hollywood stores also would give Blockbuster another 1,900 distribution points for its online service.

The biggest boost a deal would give to Blockbuster's diversification plans, however, would be in videogames.

Although Blockbuster has recently rolled out its Game Rush store-in-store concept to about 450 stores, it trails well behind Hollywood's Game Crazy, which the chain started four years ago and has rolled out to nearly 700 locations.

Combining the two would make Blockbuster far more competitive with the leading game specialty chains, EB Games and GameStop.

In Hollywood's most recent quarterly report, Game Crazy accounted for about 15% of the chain's revenue. ---
facebook.com/whotony