Staff at the U.S. Federal Trade Commission are preparing to go to court to stop Blockbuster Inc.'s hostile bid for Hollywood Entertainment Corp., sources close to the case said on Wednesday.
The FTC staff is expected to recommend within days that the agency file suit to block the deal because of concerns it would hobble competition in the video rental market, these sources said.
Blockbuster general counsel Edward Stead told Reuters there were indications the FTC's staff opposed the deal and "had their heels locked in" as a March 21 deadline approached for the agency to make a decision.
Hollywood has rejected Blockbuster's offer and has agreed to be bought by Movie Gallery Inc., a deal the FTC has already approved.
Hollywood is a distant second to Blockbuster in the movie rental business. Movie Gallery is No. 3.
Stead said the FTC had not responded to Blockbuster's offers to negotiate a compromise that could make the idea of combining the two largest U.S. video rental chains more palatable to the agency.
However, Stead said he was "hopeful" the company could prevail in court if the agency decides to sue.
Stead said FTC staffers were clinging to an "outdated" view of the video market.
He said FTC staff refused to accept the company's argument that the deal is not anticompetitive because Blockbuster has to compete with video sellers such as Wal-Mart Stores Inc. , online video providers, and with cable and satellite television.
"It's apparent to us that they're living in the past -- we need an objective (judge) to get at this," Stead said.
Hollywood has said Blockbuster's offer raises "significant antitrust issues that cause substantial uncertainty as to whether the transaction would be allowed to proceed."
The agency will not issue a formal recommendation until it finishes studying some last-minute information on video rental rates that the companies have provided, according to one source. But it is "highly unlikely" the data will reverse the staff's opposition, this source said.
