Blockbuster on Wednesday launched its expected hostile bid for rival home video retailer Hollywood Entertainment with a stock-and-cash exchange offer of $14.50 a share.

The move by the world leader in the business topped last month's agreed offer of $13.25 a share in cash from Movie Gallery, valued at the time at $850m.

Blockbuster said in a statement that its bid, of $11.50 cash and $3 in shares effective tomorrow was worth more than $1.3bn.

The exchange offer was scheduled to expire at midnight EST on March 11.

The start of a bidding war for Hollywood, a distant number two with 2,000 outlets compared with Blockbuster's 9,000 worldwide, adds uncertainty to an industry swarming with aggressive new competitors.

Online rental services from Netflix and others, including Wal-Mart, the leading distributor of DVDs and video-cassettes for sale, have raised a serious challenge to the dominance of traditional bricks-and-mortar stores.

Relatively low prices for DVD discs have undermined the basic trade in rentals.

John Antioco, Blockbuster chairman and chief executive, said the transaction would provide “tremendous value” for both companies' shareholders and “should better position Blockbuster to compete in the rapidly changing home entertainment marketplace.”

The company statement said it was pressing on with an attempt to obtain approval from anti-trust authorities, and expected to file its Hart-Scott-Rodino compliance statementby the end of the week.

Some analysts, expecting a more aggressive approach, had expected Blockbuster to wait to obtain approval from regulators before proceeding.

Wednesday's announcement followed a flat refusal by Hollywood to contemplate Blockbuster's offer of $11.50 a share. It refused to open its books for Blockbuster to conduct due diligence unless it agreed not to launch a hostile bid for three years.

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