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Redbox Owner Exploring 'Financial Alternatives'

14 Mar, 2016 By: Erik Gruenwedel

Following a disappointing financial quarter, Redbox corporate parent Outerwall March 14 said it had initiated a process to “explore strategic and financial alternatives” to maximize shareholder value. Translation: The board is looking to sell the company.

Outerwall has retained Morgan Stanley & Co. LLC as its financial advisor, and Perkins Coie LLP as its legal advisor to assist in this process.

In the meantime, the company said it would redouble efforts managing the company’s businesses (which include Redbox, Coinstar, ecoATM (consumer electronics recycling) and Gazelle (online CE buyer/seller) for profitability and cash flow, while focusing on expense management, operational efficiencies and network optimization.

The board also doubled a planned dividend to 60 cents per share payable June 21.

"The board and management team will evaluate all options thoughtfully and carefully with the support of our advisors,” CEO Eric Prusch said in a regulatory filing. “Throughout the review process, Outerwall will remain focused on executing on our operational plans.”

Indeed, Redbox net income fell 60% to $17 million on a 12% revenue decline to $527 million in the most-recent fiscal period. Redbox, which saw a 24% decline in movie rentals, generated a 50% decline in operating income of $62.6 million on revenue of $407 million — the latter down from $490.7 million in the previous-year period.

The board's action appears to be in line with the demands outlined in letter last month by Engaged Capital, which owns more than 15% of Outerwall. The investor group recommended the board issue a $7.50-per-share dividend and take the company private. The investor group alleged failed share repurchase plans had cost investors more than $1 billion in shareholder capital.

“Share repurchases do not create value in and of themselves. The business is not broken. The valuation of the business is broken and fixing the stock’s valuation is entirely in the hands of the board and management,” read the letter.

Wedbush Securities media analyst Michael Pachter believes the board's action has more to do with effciency than transfer of ownership.

"They're looking to maximize cash flow, which means cost-cutting and generating more revenue," said Pachter. "If management is able to stabilize the Redbox business, the company is likely to attract private equity interest."

About the Author: Erik Gruenwedel

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