Outerwall shareholders will get $52 per share in a deal that will make the Redbox operator a private company.
Private equity firm Apollo Global Management will buy Bellevue-based Outerwall for $52 per share, the companies announced Monday.
Outerwall, known for its Redbox and Coinstar kiosks, will be a private company when the deal is completed. Outerwall stock climbed throughout the day Monday, closing up 11 percent to $52.19 per share.
The entire deal is valued at $1.6 billion, including Outerwall’s debt.
Previous name: Coinstar
Founder: Jens Molbak
CEO: Erik Prusch
Kiosks: 60,000 worldwide
2015 revenue: $2.2 billion
Outerwall has struggled to keep up in recent years amid the growing streaming digital-media market. It shut down its own streaming service, Redbox Instant, nearly two years ago in the face of competition from Netflix, Amazon Prime and others.
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Redbox is now testing a new video-on-demand service, Outerwall spokeswoman Susan Johnston said in an email.
Activist investor Engaged Capital, which owns 14.6 percent of Outerwall’s shares, had been pushing the company to consider different financial options, including going private. The activist investor was in charge of choosing three added members, announced in April, to Outerwall’s board of directors.
New York-based Apollo’s purchase price is an 11 percent increase over Outerwall’s Friday closing price of $46.91 per share, and a 51 percent increase from its share price March 14, when the company started considering an acquisition.
Outerwall appointed a new CEO last summer, months after it said it would pull Redbox DVD rental machines out of Canada. Redbox, once a boon for Outerwall, has reported shrinking sales in the past couple of years as the streaming audience grows.
The decline follows a trend common to physical forms of entertainment, said Andy Hargreaves, senior research analyst at Pacific Crest Securities. DVDs may soon go the way of records and 8-track tapes as newer technology replaces them.
“Typically, it takes a few years for the new format to sort of gain critical demand, then the old format starts declining,” Hargreaves said. “First the decline is moderate, then it accelerates. It usually doesn’t stop until the old format is dead.”
The decline of DVDs, he said, has lasted longer than usual but has been accelerating in recent years.
Redbox reported $421.5 million in revenue during the first quarter, a 19 percent drop from the same quarter in 2015. The kiosks had 137.7 million rentals during the three-month period, down from 173 million a year ago.
Overall, Outerwall posted profit of $38.5 million on revenue of $535.9 million for the quarter.
The company is named for the fifth wall of retail formed by its kiosk products extending beyond a store’s four walls. In addition to its long-standing Coinstar coin-exchange machines, Outerwall has tried several different formats, including gift-card exchanges, ticket-purchasing and sandwich vending machines — all to no avail, said Michael Pachter, an analyst with Wedbush Securities.
The time was right to “put them out of their misery,” Pachter said, noting that the company’s board agrees with the decision to sell. He and Hargreaves agreed the purchase price seemed fair for shareholders.
Outerwall’s stock was once worth more than $80 but fell to less than $26 in February and was about $44 at one point in June.
The bright spot, Hargreaves noted, is the stability of coin exchanges, which Outerwall offers with its Coinstar kiosks.
The company did not say what this could mean for employees. Outerwall had 2,670 employees at the end of 2015, including 1,730 who work in the field.
CEO Erik Prusch said in an email the acquisition means Outerwall can continue “to execute on our strategy.”
“Notably, today is possible only because of the hard work and dedication of our valued employees here in the Puget Sound region and across the country,” he said. “We share a common vision to serve and delight our customers and look forward to working with Apollo in the months and years ahead.”
Outerwall is to report second-quarter earnings Thursday.