New Wattles Hollywood Bid Seen Easing Antitrust Concerns
Former Hollywood Entertainment CEO Mark Wattles’ offer to buy up to half of that chain’s 2,006 stores could ease antitrust worries and ease Blockbuster’s bid for Hollywood Entertainment, said industry officials polled by Consumer Electronics Daily.
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In a letter filed with SEC and sent to Blockbuster, Wattles said the FTC would be “more inclined to permit” Blockbuster to acquire Hollywood if it divests stores the federal agency views as “more directly competitive.” Some 1,600 Hollywood outlets are within 2 miles of a Blockbuster location, but the video rental giant hasn’t proposed closing stores to allay antitrust concerns, Hollywood has said. “I would be willing to limit the stores purchased to those that are the most competitive with Blockbuster,” Wattles said.
Resolving antitrust concerns is key for Blockbuster. The FTC was set to finish reviewing the proposed transaction on March 21. But as of Wed. Blockbuster hadn’t received word on whether the FTC had done its work, a spokeswoman said. Blockbuster’s $14.50 per share offer for Hollywood expires today (March 24).
Wattles said he’s had “favorable discussions” on possible financing for his deal; he’s hired Dallas-based Challenger Capital Group as a financial advisor. Wattles also proposed selling half his 6.1 million (9.58%) shares of Hollywood during coming months on the open market or through private transactions to finance “various business ventures and investments,” he said in an SEC filing. Wattles bought a controlling stake in bankrupt CE chain Ultimate Electronics and signed as CEO earlier this year. Wattles, who founded Hollywood, resigned as its CEO Feb. 2.
Seeking shareholder support for his offer, Wattles said he had talked with billionaire investor Carl Icahn, who bought 5.8 million shares (9.07%) to support Blockbuster’s bid. Deephaven Capital Management is the 3rd largest Hollywood stockholder with 3.5 million shares (5.57%). “Given my familiarity with the Hollywood stores, my transaction team and I are prepared to move very quickly with respect to such a transaction,” Wattles told Blockbuster Chmn. John Antioco in the letter.
Meanwhile, Hollywood was proceeding with a proposed sale to 2,482-store Movie Gallery, scheduling a special meeting April 22 at the Sweetbrier Inn, Tualatin, Ore., for shareholders to vote on the $13.25 per share offer. Hollywood’s board, which approved Movie Gallery’s bid in Jan., has urged shareholders to reject Blockbuster’s offer, citing antitrust concerns. Blockbuster has said antitrust issues that helped scuttle its proposed purchase of Hollywood in 1999 no longer exist, given the emergence of the Internet and Wal-Mart and other national chains as major factors in the DVD business.
Wattles has ties to the proposed sale to Movie Gallery. He met with Movie Gallery CEO Joseph Malugen and Senior Vp Thomas Johnson Dec. 7 to discuss it, according to a proxy filed before the April 22 meeting. In connection with its proposed acquisition, Movie Gallery must get senior secured credit facilities totaling up to $720 million -- a $75 million revolving agreement and 2 term loans with aggregate value of $645 million. It also must get a $475 million senior unsecured interim loan. The deadline for completing the sale to Movie Gallery is May 1. The deal carries a $27 million termination fee plus additional costs up to $3 million, the SEC filing said.
Movie Gallery emerged as a bidder for Hollywood in Nov., besting Blockbuster’s $11.50 per share offer made earlier the same month. Blockbuster upped its bid to $14.50 -- $11.50 cash and shares of its Class A common stock valued at $3 -- in Feb. Wattles began the bidding for Hollywood in Feb. 2004, launching an offer with backing by Leonard Green & Partners to take the chain private at $10.50. The Hollywood board rejected that proposal in Jan. ----
Antioco will forgo $751,823 in deferred compensation for the rest of 2005 starting May 1 as part of what Blockbuster said in an SEC filing were “cost containment efforts.” To comply with Antioco’s request regarding deferred compensation, his employment contract was amended on March 19. The deferred compensation will continue to be calculated for determining Antioco’s benefits paid under his contract such as a target bonus, the SEC filing stated.