Flash from Hollywood

Hollywood Entertainment Corp. (Wilsonville, Ore.), which had been a takeover target of rival Blockbuster Corp. (Dallas), says it has instead entered into a definitive merger agreement with Movie Gallery Inc. (Dothan, Ala.), the third-largest company in the video-rental retail industry.

In the deal, Movie Gallery would acquire all of the outstanding shares of Hollywood for approximately $850 million. Under the terms of the agreement, which was unanimously approved by Movie Gallery’s board of directors, Movie Gallery will also assume approximately $350 million of Hollywood’s debt. The transaction has a value of $1.2 billion and is expected to be completed during the second quarter of 2005.

The combined company would be the second-largest North American video rental company with annual revenue of approximately $2.5 billion and approximately 4500 stores located in all 50 U.S. states, Canada and Mexico.

“This transformational merger creates a leading North American retailer with outstanding prospects for future growth,” said Joe Malugen, Movie Gallery’s chairman, president and ceo. “With a broader geographic presence and greatly improved distribution capabilities and scale, our combined company will be a strong competitor, well-positioned for continued success in urban, suburban and rural markets.”

Malugen would serve as chairman, president and ceo of the combined company. Movie Gallery would remain headquartered in Dothan and Hollywood Entertainment would remain headquartered in Wilsonville. Hollywood would become a subsidiary of Movie Gallery and would continue to operate under the Hollywood brand name. Movie Gallery noted there is very little overlap between its and Hollywood’s store locations. Movie Gallery currently owns and operates more than 2475 video specialty stores focusing on the suburban and rural markets.

Earlier this month, industry leader Blockbuster threatened to make a $700 million hostile takeover offer for Hollywood Entertainment, backed by investment financier Carl Icahn. That deal would have gained Blockbuster control of 50 percent of the video rental market in the U.S.