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Hollywood Video considers sale

WILSONVILLE-- Hollywood Entertainment Corp. has hired an investment bank to help decide whether to go private or put itself up for sale after losing more than three-fourths of its market value in the past year.

Stock prices for the nation's second-largest video rental chain dropped to the $7 range from a high of $27.50 last May, cutting its market value from nearly $1.3 billion to about $294 million.

Hollywood Entertainment CEO Mark Wattles said he decided to hire Donaldson, Lufkin & Jenrette for advice after he received a number of sale offers based on the low share prices.

Wattles said the investment firm will help Hollywood take a more systematic approach to evaluating offers. He added that no deadline has been set, but we'll be very focused on that over the next several months.

Wattles founded Hollywood Entertainment in 1988 and took it public in a $12 million stock offering in 1993.

One option is to buy out other investors and take it private again.

I own about a quarter of the company right now and would love to own more if the price is good, Wattles said.

He didn't put a value on Hollywood but said the company's Reel.com Internet subsidiary alone is worth a couple hundred million dollars.

He noted, however, that the Web site has been eating up cash and turning profits from the video chain into a loss for Hollywood Entertainment as a whole.

Wattles said the company doesn't need money -- its 1,710 Hollywood Video stores generate plenty of cash -- but strategic partners'' could offer technology that helps develop programs to electronically transmit movies to viewers.

Meanwhile, Yucaipa Co., a venture capitalist firm in Los Angeles, is investing in Reel.com, a move that may raise Hollywood's value to acceptable levels, Wattles said.

Investors seeking hot high-tech stocks have avoided Hollywood Entertainment because they consider it a retail company, Wattles said.

Hollywood may still pursue plans to spin off part of Reel.com if a stock offering would bring a good price, he said.