Blockbuster Inc. will make a run at Hollywood Entertainment Corp. in mid-January unless Hollywood agrees to be acquired before then.

Blockbuster intends to issue a cash tender offer for all outstanding shares of Hollywood stock, a transaction of approximately $1 billion (including Hollywood’s debt).

Hollywood announced in March that it would merge with an affiliate of Leonard Green & Partners, a merchant banking firm with investments in retail chains, including Petco Animal Supply, Rite Aid and The Sports Authority. The deal has hit snags, including an April lawsuit that sought to block the merger because the $14-per-share payout to stockholders was too low. Leonard Green lowered its offer in October to $10.25 per share, citing doubts that Hollywood could meet the financing conditions of the deal.

Blockbuster plans to offer $11.50 per share, and will go higher if Hollywood executives prove the stock is worth more.
“We believe the proposed transaction will better position Blockbuster to compete in the rapidly changing home entertainment marketplace,” said Blockbuster Chairman-CEO John Antioco in a statement.

Blockbuster has retained Citigroup, Credit Suisse First Boston and JPMorgan as financial advisors and has received a financing commitment from JPMorgan, Credit Suisse First Boston and Citigroup to complete the tender offer.

Portland, OR-based Hollywood operates 1,920 Hollywood Video superstores and 600 Game Crazy specialty stores. Dallas-based Blockbuster has 8,900 stores worldwide.