DALLAS (AP) — Blockbuster Inc., facing new attacks from
big retailers and online operators, has offered $700 million for
rival Hollywood Entertainment Corp. in a bid to combine the two
biggest players in the movie-rental industry.

Blockbuster, the biggest name in movie rentals, said yesterday
that it had communicated its interest to No. 2 Hollywood
Entertainment but that there have been no substantive talks on
terms of a deal.

Hollywood Entertainment is already in a deal to let its chairman
and chief executive and a buyout firm take the company private. The
agreement, however, allowed Hollywood to solicit other bids, and
the CEO said he welcomed Blockbuster’s offer.

The deal would give Blockbuster, which already has 9,000 outlets
worldwide, more than 1,920 Hollywood Video stores and 600 Game
Crazy specialty stores. But it could also raise antitrust
questions.

In 1999, a plan by the two companies to rename Hollywood stores
under the Blockbuster banner was stopped by the Federal Trade
Commission, but analysts say a merger of the two largest
movie-rental firms stands a better chance now.

Stacey Widlitz, an analyst for Fulcrum Global Partners, said
regulators would probably block Blockbuster’s plans if they
considered the movie-rental business as a distinct industry, but
not if they lumped rentals with retail sales of DVDs and games.
Widlitz said the combined company would control about half the U.S.
rental business but only about 20 percent of rentals plus retail
sales.

Dallas-based Blockbuster said it offered $11.50 per share, a 17
percent premium over Wilsonville, Ore.-based Hollywood
Entertainment’s closing price Wednesday of $9.80 per share,
and would assume about $350 million in Hollywood Entertainment
debt.

The deal would trump the pending bid of $10.25 per share for
Hollywood Entertainment by a Los Angeles buyout firm.

In afternoon trading, Blockbuster shares were up 58 cents, or
7.9 percent, to $7.96 on the New York Stock Exchange, and Hollywood
Entertainment shares rose $1.15, or 11.3 percent, to $10.95 on the
Nasdaq Stock Market.

Retailers such as Wal-Mart Stores Inc. sell DVDs so cheaply that
they tempt movie renters. In addition, Blockbuster now faces
competition from subscription online rental operators such as
Netflix Inc.

The new nature of the competition was reflected in recent price
cuts by leading providers of Internet movie rentals. Netflix and
Blockbuster knocked more than 10 percent off their monthly online
subscription rates, and Wal-Mart jumped into the fray by
undercutting both.

The price war was triggered by Netflix’s fear that
Amazon.com Inc. would muscle into the business.