03.25.2005, 08:49 AM

Blockbuster Entertainment Inc. said Friday it is dropping its bid for smaller rival Hollywood Entertainment Corp., which had resisted its overtures in favor of a lower offer from another video rental company.

Hollywood Entertainment, the No. 2 player in the industry after Blockbuster, had opposed the deal because of likely regulatory opposition. The Hollywood board has recommended that shareholders accept a buyout offer from Movie Gallery Inc., the third biggest in the industry.

Blockbuster said Friday its offer to acquire all of Oregon-based Hollywood`s shares for $14.50 in cash and stock had expired and would not be extended.

``Our decision not to extend our offers was reached after a careful review of all of the available facts and circumstances,`` John Antioco, chairman and CEO of Blockbuster, said in a statement.

Earlier this month, a Blockbuster official had said after a meeting with Federal Trade Commission officials that the agency was likely to try blocking Blockbuster`s proposed purchase of Hollywood on antitrust grounds.

The FTC was examining whether a merger of the two largest U.S. movie-rental companies would give the combined company too much power over pricing. The FTC scuttled a Blockbuster-Hollywood deal in 1999 on similar grounds.

In his statement, Antioco said among Blockbuster`s reasons for ending its pursuit of Hollywood 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,`` he said.

Dallas-based Blockbuster said it will promptly return any shares that had been tendered under its offer.

Blockbuster had offered $14.50 per share in cash and stock. Hollywood`s board backed a sale to Movie Gallery, based in Dothan, Ala., for $13.25 per share in cash because that deal has received FTC approval.