Outerwall Inc: What the Buyout Means for OUTR Stock

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Outerwall Inc (NASDAQ:OUTR) may not be a household name, but an Outerwall buyout by a private equity firm means big profits for shareholders.

outerwall buyout outr stockAnd since it’s unlikely there’s another bid forthcoming, OUTR stock holders should sell ASAP and take the immediate profits from this Outerwall buyout offer.

Outerwall isn’t well-known, but its Redbox and Coinstar businesses are. And despite the rise of streaming video and digital payments, OUTR stock and its subsidiaries are attractive enough to win a big buyout on this Merger Monday.

The Outerwall buyout by private equity giant Apollo Global Management LLC (NYSE:APO) is worth $1.6 billion, including the assumption of debt. That adds up to $52 per share in OUTR stock, an 11% premium over Friday’s close. Unsurprisingly, Outerwall stock is immediately pricing in that pop at the open of trading today.

Outerwall operates roughly 40,000 Redbox DVD rental machines and 21,000 Coinstar change machines around the U.S. OUTR stock was set to tally almost $2 billion in top-line sales this fiscal year and turn a hefty profit of $8.77 a share — with a roughly 5% dividend yield to boot!

And with continued focus on operational efficiencies, it’s no wonder why a private equity firm would be interested in this cash cow.

Outerwall Buyout Was Expected

OUTR stock had already rallied about 30% year-to-date thanks in part to hopes of a big buyout, but also because the company clearly was showing staying power and offering a nice dividend yield. Though, in fairness, even after this big rally lately and the Outerwall buyout, shares still will finish down around 35% from where they were a year ago.

Apollo, which has experience in turning around aging brands, is a heavy hitter when it comes to deals like this. The latest example comes via Hostess Brands, a once-valuable brand that saw its sugary treats fall by the wayside amid healthier eating habits. But Apollo restructured the snack giant, and Hostess will once again debut as a publicly traded company valued at over $2 billion after an upcoming IPO, according to reports.

Of course, that’s not charity work. Reports show Apollo and its partners paid as much as $410 million for Hostess a few years ago, so cashing out will provide a nice return on their investment.

Whether the same can happen at Redbox parent Outerwall remains to be seen. Indeed, the reliable cash flow and big dividends are nice, but it seems highly unlikely that a restructuring or spinoff will be forthcoming the way a Hostess IPO was. Netflix, Inc. (NASDAQ:NFLX) and Amazon.com, Inc. (NASDAQ:AMZN) would never want to take a step back from their dominant streaming businesses into DVD kiosks, and kiosks that pop out DVDs and sort your change don’t quite have the homespun appeal and guilty pleasure of Twinkies and Ho-Hos.

Redbox, sadly, had its moment and will now go the way of the VCR and Walkman.

In reality, Apollo may simply be content to harvest big dividends from after the Outerwall buyout and dip into the company’s reliable cash flow as long as it lasts.

Still, nice work if you can get it. And a nice 11% pop today in OUTR stock for investors who got in last week.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/07/outerwall-inc-buyout-outr-stock/.

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