Activist investor Jana Partners reported Friday that it had a 13.5% stake in Outerwall, the operator of the Redbox movie kiosks, and said it wants to sell some or all of the company's businesses.
Jana seeks the sale, spinoff or shutdown of the Redbox Instant by Verizon film-streaming venture, which has failed to develop into a credible threat to Netflix, as well as the Rubi coffee-vending kiosks that made their debut in 2012, a person with knowledge of the matter said.
Jana, run by co-founder Barry Rosenstein, is targeting Outerwall after the company disappointed investors for two straight quarters. Shares fell 12% on Sept. 17 after Outerwall cut its forecast for third-quarter and full-year revenue and profit, citing discounting and shorter rental periods for DVDs. The shares also dropped on July 26 after the company reported second-quarter sales that missed analysts' estimates.
Jennifer St. Clair, a spokeswoman for Redbox Instant, didn't respond to requests for comment. Verizon Communications owns 65% of Redbox Instant, which began service in March.
"Outerwall welcomes the opinions of its shareholders and is always open to constructive input," said Outerwall, which changed its name from Coinstar in July, in a statement. "We are committed to driving value for all Outerwall shareholders and will continue to take actions to achieve this important objective."
With 3.78 million shares, Jana Partners is now Outerwall's biggest investor, based on data compiled by Bloomberg. Jennifer Fanjiang, general counsel for Jana, declined to comment beyond the filing.
Outerwall has added the vending machines that sell coffee and recycle electronics, as well as starting the Redbox Instant venture, to lessen dependence on Redbox DVD kiosks, which provided 87% of 2012 revenue, based on data compiled by Bloomberg. The company also operates coin-counting machines.
"The most likely outcome is that JANA Partners will be joined by several other shareholders, and the group will succeed in convincing management to focus on cash generation," Michael Pachter, an analyst with Wedbush Securities, said in a research note. "Outerwall's balance sheet can support some level of debt that would permit the company to buy back a significant percentage of its stock."
Outerwall has taken too long to develop new initiatives, Mr. Pachter said. There is room to cut costs and sell the company's mature coin-counting business for a significant sum, Pachter said.
"While we believe that the company's coffee and ecoATM ventures have some potential, we have been uniformly skeptical about its other initiatives," Mr. Pachter said. "Many of our clients have shared our skepticism."
Executives of Jana met last week with Outerwall management to discuss options including a breakup, according to the person, who sought anonymity because the talks are private. Cost cuts and buybacks were also discussed, the person said.
Outerwall said it hired Morgan Stanley as financial adviser and Perkins Coie for legal advice.
~ Bloomberg News ~