DALLAS-Blockbuster Video, the country’s largest movie rental chain, has placed a $1-billion, $11.50 per share, bid for Hollywood Entertainment, operator of the Hollywood Video chain and its biggest competitor. The deal would give Blockbuster almost 2,000 US stores, adding to its international portfolio of about 9,000 units.

Portland, OR-based Hollywood already is holding an agreement to be acquired by the private equity firm, Leonard Green & Partners, for $10.25 per share. That transaction originally was proposed in March at $14 per share, but Leonard Green lowered its bid last month because of “amended commitments” from its debt financing sources. Hollywood’s stock closed yesterday at $9.80.

The deal would position locally based Blockbuster “to compete in the rapidly changing home entertainment marketplace,” John Antioco, the company’s chairman and CEO, says in a statement. The company has faced increasing competition from discounters and online rental firms such as Netflix, industry observers say.

If Blockbuster is able to acquire Hollywood, it would increase its share of the rental business from 40% to 50%, Dennis McAlpine, managing partner of Scarsdale, NY-based entertainment research firm McAlpine Associates, tells GlobeSt.com. “It would give them a substantially higher customer base,” he says.

McAlpine speculates Blockbuster could keep the Hollywood Video name if the transaction goes through because “just changing the signage alone on 2,000 stores is expensive.” Some stores would likely be shut down or Blockbuster would let the leases expire at certain locations, he says, though Hollywood’s units are generally newer than Blockbuster’s. One barrier Blockbuster could face is a possible rejection of the deal by the US Justice Department because it would be the merger of the two largest chains in the sector, McAlpine says.

Blockbuster and Hollywood Entertainment officials were not available for comment. Last month Viacom disposed of its majority ownership in Blockbuster, forcing the video retailer to take a charge of $1.5 billion during the third quarter when its same-store sales decreased 6.3% worldwide. Hollywood’s same-stores sales dropped 2% in the third quarter.

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