Dolphin-I Cautions Hollywood Special Committee That Auction Process Must be Disinterested
November 22 2004 - 2:01PM
PR Newswire (US)
Dolphin-I Cautions Hollywood Special Committee That Auction Process
Must be Disinterested STAMFORD, Conn., Nov. 22 /PR Newswire/ --
Dolphin Limited Partnership I, L.P., a Stamford, CT based private
investment partnership that beneficially holds 1.9 million shares
of Hollywood Entertainment, Inc. (NASDAQ:HLYW), today released the
following open letter to the chairman of the special committee of
the Company's board of directors that is conducting the process for
the sale of the Company. In the letter, Dolphin explains why it
believes the actions of the committee to date have been suspect and
cautions that the committee must now conduct an auction process
that is totally fair and disinterested. November 22, 2004 Mr. S.
Douglas Glendenning Chairman, Special Committee, Board of Directors
Hollywood Entertainment, Inc. 9275 S.W. Peyton Lane Wilsonville, OR
97070 Dear Mr. Glendenning: With Friday's announcement by Movie
Gallery, Inc. that it too has delivered an acquisition proposal to
your committee, there are now two bids competing with the
undervalued buyout by Leonard Green & Partners ("LGP") and top
management. We may never know the damage shareholders have suffered
because the committee entered into an exclusive arrangement with
LGP and the Company's chairman, Mr. Mark Wattles, earlier this year
rather than having conducted an auction. The pretext given for
initially not seeking an auction -- that it would somehow damage
the Company by leading to "leaks" -- now appears to have
evaporated. With each new bona fide bid for the Company, suspicions
grow that the committee's decision to deal exclusively with LGP and
Mr. Wattles was not made in the best interests of shareholders. We
caution the committee that consideration of all acquisition
proposals must be conducted in a fair and evenhanded manner, with
no advantage whatsoever given to the transaction sponsored by LGP
and top management. This includes providing ample time for all
bidders to conduct diligence, as LGP has had over nine months to
examine the Company. Now the objective of the committee must be to
obtain the best and highest possible transaction value for all
shareholders. Thus far, we believe the committee has failed to
demonstrate its allegiance to all of its shareholders. We say this
because of the initially flawed process by which the committee
approved the March LGP buyout and the serious questions that arise
from the revised proxy materials in support of the reduced October
buyout. The committee appears to have accepted the revised fairness
report which, even upon a casual comparison to the July $14/share
transaction, reveals obvious flaws. Nearly every aspect of the
October analysis-an over reliance on top management's dramatically
cut projections, the utilization of unsupported reduced terminal
exit multiples, the introduction of factors to discount the market
value of the Company's shares to its comparable competitors and the
absence of a control premium analysis-appears to have been adapted
to support a 27% cut to $10.25. How could the committee also fail
to appreciate what the Company's competitors were saying about the
depressed second-half industry results? During this timeframe there
has been a "perfect storm" - the Olympics; the presidential
election; the highly competitive fall baseball season; the private
release of the Passion and Fahrenheit 9/11 that drew large
audiences but whose store appearance has been delayed; the extreme
weather in the Southeast; and the generally weak movie release
calendar. The unbelievable $67 million drop in top management's
2005 EBITDA projections -- that occurred in a span of just three
months -- appears predicated on these anomalies. Yet there is no
evidence in the revised proxy materials that the committee was
properly focused on the confluence of these likely one-time
circumstances, let alone applied them to a critical analysis of top
management's revised projections. With this background, we are
carefully watching the committee for any hint that the auction
process is not being conducted in a thoroughly disinterested
manner. Only a process that yields the highest and best value for
all shareholders, a solid merger agreement -- as opposed to the two
Swiss cheese agreements in the LGP/top management buyouts -- and
appropriate and timely information to all shareholders will
demonstrate that the committee has indeed lived up to its fiduciary
responsibilities. Despite the questionable history of this
transaction, we expect that you and your colleagues on the
committee will now do so. Very truly yours, /s/ Donald T. Netter
Donald T. Netter Senior Managing Director cc: J. Feuer, Esq.
(Gibson Dunn & Crutcher, Counsel to the Special Committee) J.
K. Layne, Esq. (Gibson Dunn & Crutcher, Counsel to the Special
Committee) R.J. Moorman, Esq. (Stoel Rives LLP, Counsel to the
Company) DATASOURCE: Dolphin Limited Partnership I, L.P. CONTACT:
L. Bolster of Dolphin Limited Partnership I, L.P., +1-203-358-8000
Copyright
Hollywood Entertainment (NASDAQ:HLYW)
Historical Stock Chart
From Aug 2024 to Sep 2024
Hollywood Entertainment (NASDAQ:HLYW)
Historical Stock Chart
From Sep 2023 to Sep 2024
Real-Time news about Hollywood Entertainment (MM) (NASDAQ): 0 recent articles
More Hollywood Entertainment (MM) News Articles