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Coinstar Completes NCR Acquisition

25 Jun, 2012 By: Chris Tribbey


Redbox parent Coinstar has completed its $100 million acquisition of NCR Corp.’s entertainment division, including 10,000 kiosks operating under the Blockbuster Express brand.

The acquisition effectively ends the Blockbuster Express kiosk brand, with Redbox planning to ship shuttered Blockbuster Express kiosks to international markets, turning them into Redbox kiosks.

“With the closing of the NCR transaction, we have strengthened our ability to bring the value and convenience of Redbox entertainment to new retail partners and their customers," said J. Scott Di Valerio, CFO of Coinstar. “While we expect to incur losses during the initial period, as we swap out the acquired kiosks for new Redbox kiosks, we expect the economics to improve and become accretive sometime in 2013.”

The transaction includes a five-year manufacturing and services agreement between Coinstar and NCR, valued at $25 million in profit over the term of the deal.

Coinstar expects an initial decrease in earnings per share from the deal to the tune of 40 cents to 50 cents per share for the year 2012, and an increase in capital expenditures between $40 million and $45 million.

The deal was first announced in early February, after Blockbuster Express reported a fourth-quarter operating loss of $15 million, and a full fiscal-year 2011 loss of $60 million.

Eric Wold, analyst with B. Riley & Co. in Los Angeles, said the acquisition removes a major competitor, leaves Redbox alone as king of DVD kiosks, and provides “entry into the two remaining major grocery chains for DVD rentals: Safeway and Publix.”

“Even though Redbox and NCR kiosks are not compatible (without significant integration expense), we see the opportunity for Redbox to re-skin the NCR kiosks (as the internals are fine) and use those kiosks to seed a new market, such as Europe,” Wold wrote in a note to investors. “Not only would this use of the NCR kiosks save significant incremental cap-ex, but the kiosks would not need to connect with the U.S. market system — avoiding the issue of non-compatibility with Redbox.”

John Kraft, analyst with D.A. Davidson in Lake Oswego, Ore., noted that the Blockbuster Express kiosks couldn’t turn a profit under NCR’s watch, and they won’t be profitable for Redbox right away either. But investors should be patient, he wrote in a research note.

“At the end of the day, the DVD format still remains the lowest price rental option,” he wrote. “The acquisition will give Coinstar the ability to expand its domestic network and possibly use the blue kiosks for international markets. Combining this with a soon-to-be-launched digital partnership and the roll out of a coffee kiosk initiative, we remain very positive on the stock.”

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