A Blockbuster of a Deal or a Last Gasp?

Nov 12, 2004

By George Anderson

Blockbuster has proposed a $1 billion takeover bid for rival Hollywood Video that the company sees as a means to gain a competitive advantage in the home entertainment market but others see as the inevitable consolidation that takes place when an industry is in decline.

The deal proposed by Blockbuster took place without any formal discussions between it and Hollywood Video, which had not commented publicly on the offer as of press time.

Blockbuster’s proposal includes paying $700 million in cash for the chain plus assuming up to $300 million Hollywood Video’s debt.

“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,” said John Antioco, Blockbuster’s chairman and chief executive, in a prepared statement.

A combined Blockbuster and Hollywood Video would create a chain of nearly 7,000 stores with a market share of 60 percent in the video rental business, according to the Long Beach Press-Telegram.

While Blockbuster is decidedly bullish on the prospect of combining Hollywood Video’s operation with its own, others are less sanguine about the proposed deal.

Media analyst Dennis McAlpine of McAlpine Associates told the Press-Telegram, “It’s a typical end-game for a dying industry. As you look at an industry that’s starting to go down, you generally see consolidation. The remaining entrants get more and more market share as the industry goes down so they can continue to show growth.”

Moderator’s Comment: Do you agree with Blockbuster that its proposed deal will make it a more competitive company
or with those who say it would create a larger company to serve a dwindling market?

George Anderson – Moderator

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