Apollo Global Management could become the nation’s leading operator of DVD rental kiosks as the result of a $1.6 billion (including debt) agreement announced this morning to buy Outerwall, which owns the struggling Redbox business.
The private equity firm has agreed to pay $52 for each Outerwall share, a 6.6% premium over its closing price on Friday — but 51% more than the trading price on March 14 when Outerwall said that it was considering a sale. The companies expect the deal to close by the end of September.
Outerwall has lost about 42.5% of its market value over the last 12 months as DVD rentals decelerated while consumers flocked to streaming video services. The share price opened up more than 11% today to $52.15, suggesting that some shareholders believe they’ll see more than Apollo’s offer.
Today’s agreement “follows a robust process and provides an immediate and substantial cash premium to our shareholders,” Outerwall CEO Erik Prusch says. “Apollo is an ideal partner to support Outerwall’s efforts to continue serving our millions of loyal customers and dedicated retail partners through our unrivaled network of kiosks and automated retail offerings. We look forward to working closely with Apollo as we continue to strengthen our businesses and execute on our strategic plan.”
Apollo Partner David Sambur calls Outerwall “a dynamic customer-focused business that delivers superior kiosk experiences that delight consumers and generate value for its retailer partners. We look forward to working with Outerwall’s talented and dedicated team to continue the business’s strong heritage of growth and innovation.”
The Redbox owner says it will still pay its dividend in September. It will release its Q2 earnings on Thursday, but not take questions from analysts.
In April, Outerwall reached an agreement giving board seats to dissident shareholder Engaged Capital, which owns 14.6% of the company, after it lobbied for it to go private. In a public letter in February it said that the business is in “secular decline” and attacked the Redbox owner’s “failed strategies, flawed capital allocation policies, and misaligned governance.”