Hollywood Entertainment's (HLYW) ex-CEO wants to buy its stores

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Includes: BBI, MVGRQ
by: David Strahlberg

In an SEC filing, former Hollywood Entertainment (ticker: HLYW) disclosed his intention to sell half of his HLYW shares and his interest in buying stores from Blockbuster (ticker: BBI).

Here are some key points from the filing:

  • Wattles owns 6.1 million shares of HLYW, representing about 9.6% of the company
  • Wattles intends to sell up to half of his shares in the coming months, but may sell more at his discretion
  • Wattles resigned on February 2, 2005 from his position as CEO of HLYW; he is not involved in the merger agreement with Movie Gallery (ticker: MOVI)
  • Wattles has had discussions with Blockbuster (ticker: BBI) regarding a potential transaction; he has also had discussions with Carl Icahn, a large HLYW shareholder
  • On March 21, 2005, Wattles sent a letter to Blockbuster expressing his interest in buying 50% of HLYW's stores, thus helping Blockbuster receive FTC approval

Quick comments: Yet another interesting twist in the HLYW saga.  What is Wattles trying to accomplish?  BBI needs Wattles (or another buyer) to help it shed stores in order to gain FTC approval.  Its unclear how many stores BBI would need to sell; MOVI claims that there is 80% overlap between BBI and HLYW's stores.  The real number is probably less than 50%, but that is just a starting point for Wattles in a negotiation with BBI.  It is also unclear from the filing how amenable BBI is to Wattles' plan.

On the other side, HLYW has opposed every dealing with Blockbuster, but might soften up at the prospect of Wattles dumping his shares on the market, especially if Carl Icahn were willing to unload his shares as well.  A drop in HLYW's stock price could weaken its positioning in its merger with MOVI.  Remember, Leonard Green & Partners, HLYW's first suitor, lowered its bid from $14.00 to $10.25, before oth side walked away from an agreement.  Just because MOVI has a merger agreement with HLYW doesn't mean this story is over.

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