Blockbuster abandons tender for Hollywood Entertainment's 9 5/8% notes

New York, March 28 - Blockbuster Inc. said it has decided not to extend its cash tender offer for any and all of Hollywood Entertainment Corp.'s $225 million principal amount of 9 5/8% senior subordinated notes due 2011.

Blockbuster also abandoned its attempt to acquire Hollywood Entertainment's stock.

"Our decision not to extend our offers was reached after a careful review of all of the available facts and circumstances. Among those things that played prominently for us were Hollywood's recent public filings and the unlikely resolution of our request for regulatory clearance on an acceptable timetable. Given the current circumstances, in our judgment it is not in Blockbuster's best interest to continue to pursue the acquisition," said John Antioco, Blockbuster chairman and chief executive officer, in a news release.

The tender ended at midnight ET on March 24 after being extended from midnight ET on March 11.

By the close of business on March 8, holders had tendered $69.892 million of the notes.

At its last announcement on Feb. 28, Blockbuster disclosed pricing in the tender offer, saying it will pay $1,146.24 per $1,000 principal amount for notes tendered by the consent deadline, including a $30 consent payment. Holders who tender after the consent deadline will receive $1,116.24 per $1,000 principal amount.

Blockbuster announced the tender on Feb. 11 in connection with its previously announced exchange offer for all the outstanding shares of Hollywood Entertainment.

In addition to the tender for the notes, Blockbuster is soliciting consents to amend the note indenture to eliminate substantially all of the restrictive covenants and certain events of default.

The tender is subject, among other things, to Blockbuster receiving enough consents to amend the indenture, to at least a majority of the notes being tendered and to the satisfaction or waiver of conditions to the tender of Hollywood Entertainment's stock.

Separately on March 24 Hollywood Entertainment began a cash tender offer and consent solicitation of its own for the notes as part of the acquisition of Hollywood Entertainment, a Portland, Ore., movie rental chain, by Movie Gallery, Inc.

Pricing in Hollywood Entertainment's own offer will be set using a formula. For each $1,000 principal amount, the company will pay the present value on the expected payment date of $1,048.13 plus interest from the payment date through March 15, 2007. The present value will be determined using the yield to maturity of the 3.375% U.S. Treasury note due Feb. 28, 2007 plus a fixed spread of 62.5 basis points. The total includes a $30 per $1,000 consent payment that will only be paid to holders who tender with consents by the consent deadline of 5 p.m. ET on April 7.

The tender expires at 5 p.m. ET on April 21.

Hollywood Entertainment will also pay accrued interest up to but excluding the payment date.

Tendered notes can be withdrawn up to the earlier of the consent deadline or 5 p.m. ET on the business day after the day on which Hollywood Entertainment announces it has received consents for a majority of the notes.

The consent solicitation is to eliminate substantially all of the restrictive covenants and certain events of default in the note indenture.

Conditions to the tender include the receipt of consents from holders of a majority of the notes and completion of the acquisition.

Wachovia Securities is dealer manager and solicitation agent (704 715-8341 or 866 309-6316). MacKenzie Partners, Inc. is information agent (212 929-5500 or 800 322-2885).

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