In a surprising deal, Movie Gallary, the third rated video rental chain in the country announced it will be buying the second most popular chain, Hollywood Video for $850 million. It will also assume approximately $350 million in debt accumulated by Hollywood Video as part of the deal.

The sale will go down for $13.25 per share which is one-half of one percent above Friday's closing price.

The top video rental chain, Blockbuster Video, had entered into prolonged negotiations with Hollywood Video but could not agree on a purchase price. Blockbuster had threatened to make a hostile takeover of Hollywood Video if an agreement couldn't be reached within a few months. The offer from Blockbuster was $11.50 per share which Hollywood Video exceeded in its deal with Movie Gallary.

As a result of the sale, Movie Gallary will now have over 4,500 stores in North America.