Leonard Green, Hollywood agree lower price

Leonard Green & Partners has agreed revised terms with Hollywood Entertainment of a buyout valuing the US video store chain at $620 million.

Leonard Green & Partners, the Los Angeles-based private equity group, yesterday agreed revised terms of a proposed buyout of Hollywood Entertainment, the struggling video store chain. The new terms value the company at approximately $620 million, or 10.25 per share. 
 
Hollywood shares closed on $9.94 yesterday. 
 
The agreement is the latest development in negotiations between the two parties which earlier this year produced a public-to-private proposal valuing Oregon-based Hollywood at $888 million, or $14 a share. An agreement to that effect was signed in March.
 
But in August, Leonard Green withdrew the offer, citing a belief that the financing condition to the completion of the deal would not be met. Hollywood’s Nasdaq-listed shares dropped nearly 30 percent as a result.  
 
The new, reduced offer is a reflection of the difficulties facing the US movie-rental industry, which is losing market share to video-on-demand, per-per-view and Internet-based mail order rental services.
 
Hollywood is the second-largest video rental business in the US. Market leader Blockbuster is also experiencing difficulties and in July reduced earnings projections by 30 percent.
 
Hollywood’s revised agreement, announced in a press release yesterday, comes just days after Contrarian Capital Management, a hedge fund with a significant holding of Hollywood shares, reportedly asked the company to reconsider its plans to pursue a buyout.  Contrarian followed earlier calls by other shareholders that the group should think about a leveraged recapitalisation as a viable alternative.
 
Leonard Green was founded in 1989 and currently manages some $3.7 billion in equity capital. The firm says it has invested in 32 companies with aggregate value in excess of $18 billion.