Hollywood Entertainment Corp. Thursday urged shareholders to reject a takeover bid by rival Blockbuster Inc., describing the offer as inadequate, according to a letter to shareholders.
Hollywood, the No. 2 movie rental operator, has already agreed to combine with Movie Gallery Inc. in a deal worth $13.25 a share.
The letter was filed with the Securities and Exchange Commission.
Two weeks ago, Blockbuster, the top U.S. movie rental chain, raised an earlier offer to $14.50 per share bid to thwart Movie Gallery's $13.25 per share offer, which already has approval from Hollywood's board.
According to the letter, a special committee appointed to study the offer recommended rejecting it over concerns that antitrust regulators would not approve it.
"The approximately 9.4 percent premium being offered (by Blockbuster) ... will not be sufficient to compensate shareholders for the significant risk that the offer will never be completed," the letter read, in part.
Antitrust regulators cleared a proposed Hollywood-Movie Gallery merger Monday.
The committee also objected to Blockbuster's demand that it have access to Hollywood's records and personnel without signing a confidentiality agreement equal to the pact signed by Movie Gallery, the letter said.
In addition, the committee looked unfavorably on Blockbuster's proposal that Hollywood's board of directors resign and appoint Blockbuster's designates as their successors.
It also said Blockbuster's financing options expired too quickly to get the deal done, the letter said.
