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The bare-knuckled brawl for

Hollywood Entertainment


was closer to resolution Monday with

Movie Gallery


announcing a $1.2 billion definitive agreement to acquire the video-rental chain.

Movie Gallery, based in Dothan, Ala., will pay $13.25 a share in cash for its Oregon-based rival, or about $850 million, and will assume $350 million of Hollywood Entertainment debt. The acquisition would create the second-largest rental chain in the country behind




Besides financing, the deal is subject to the approval of Hollywood shareholders, which currently include billionaire financier Carl Icahn. The press release announcing the merger made no mention of Icahn's intentions. He had previously expressed a preference for a competing offer from Blockbuster, of which he is also a shareholder.

Blockbuster's last bid for Hollywood's stock was $11.50 a share, or about $700 million. The company had threatened a higher bid and a hostile offer for the stock after being barred from viewing Hollywood's books.

Monday's definitive pact sounds the death knell of a controversial plan in which Hollywood was going to be taken private by investors including its chairman and Leonard Green & Partners at $10.50 a share.

Combined, Hollywood and Movie Gallery will have about $2.5 billion in annual revenue from 2,500 stores that will retain their current names.