Coinstar Makes $350 Million Bond Offering8 Mar, 2013 By: Erik Gruenwedel, Chris Tribbey
Redbox parent could use funds to accelerate buyback of stock, says analyst
Coinstar is trying to raise $350 million selling six-year notes (bonds) to private investors — $50 million more than the Redbox parent disclosed March 4. Coinstar made the announcement following the market close March 7.
The Bellevue, Wash.-based kiosk operator said proceeds from the notes, which carry a 6% annual interest rate, would be used to pay outstanding debt, acquisitions or other investments, and corporate expenses. It expects to close the sale March 12. Coinstar ended 2012 with nearly $357 million in debt.
Notably, the bonds carry a 0.5% to 1% higher interest rate than expected due in part to investor concerns regarding the future of the disc rental market and the fact Coinstar derives most of its revenue from Redbox kiosks, said Eric Wold, analyst with B. Riley Caris in Los Angeles.
Redbox Instant by Verizon has yet to launch and isn’t projected to profitable this year. While Redbox kiosks dominate the physical rental market with more than 45% market share, investors continue to be swayed by the attention given the burgeoning subscription video-on-demand market spearheaded by Netflix.
“Given that Coinstar’s operations for at least the next two to three years (barring any major acquisitions) are still almost entirely dependent on the growth of Redbox — a business that still has a significant number of skeptics regarding its outlook, we are not all that surprised that investors would assign a little more risk (especially when compared to exhibitors’ forecasts that are based on a somewhat more stable box office),” Wold wrote in March 8 note.
The analyst contends that if Coinstar uses most of the bond proceeds to buy back shares at a premium of current valuation, it could add more than $1 in annual earnings per share. Coinstar’s board earlier this year authorized the repurchase of $284 million in company stock.
Companies often purchase their own stock in an effort to signal management's support and limit the supply of outstanding shares. By reducing the number of shares outstanding on the market, buybacks increase the proportion of shares a company owns.