Movie Gallery Inc. is having trouble paying off the debt it accrued from its acquisition of rival Hollywood Entertainment Corp. in 2005. While bankruptcy may seem inevitable, creditors recently granted a final extension on the company's loan payment obligations to Aug. 27. Increasing the likelihood of bankruptcy was the company's Aug. 10 announcement of massive losses in the second quarter. In its most recent 10-Q, the company acknowledged that "there is now substantial doubt as to our ability to continue as a going concern."
Although Movie Gallery is open to selling assets, odds are, with the credit crunch keeping private equity firms at bay, there will be few bidders. After all, Blockbuster Inc. has made it clear that digital is the future model, so purchasing its troubled rival is unlikely. Plus, the Federal Trade Commission may challenge such a deal despite losing its case against the Whole Foods-Wild Oats deal. One possible asset Movie Gallery could sell is its video game retailer Game Crazy. However, the probable buyer, Gamestop, also is likely to face an FTC challenge.
So, it looks like the credits are rolling at Movie Gallery. —Matthew Wurtzel
See loan extension story from AP via Forbes
See earnings story from Reuters
See 10-Q filing from SEC
See acquisition story from TheDeal.com
See Blockbuster's purchase of Movielink from Tech Confidential
Tags: movies, movie, dvd, film, video, rental, entertainment, hollywood
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