Coinstar and Redbox Parent Firm Outerwall Looking at Strategic Alternatives

Its original Coinstar coin-counting business long overshadowed by its once-booming but now fading Redbox DVD and video-game rental business, Outerwall Inc. on Monday announced that it had hired investment banker Morgan Stanley & Co. “to explore strategic and financial alternatives” for Outerwall shareholders.

The company simultaneously announced that would double its quarterly dividend from 30 cents to 60 cents per share.

“The increase of our quarterly dividend to this sustainable level, and the decision to explore strategic and financial alternatives both clearly demonstrate that the Outerwall board of directors and management team are committed to acting in the best interests of the company and all shareholders,” Erik E. Prusch, Outerwall’s  chief executive, said in a statement. “The board and management team will evaluate all options thoughtfully and carefully with the support of our advisors.”

It was not immediately clear if Bellevue, Wash.-based Outerwall would remain an independent, publicly held entity, be sold to a private investor, or broken up. In February, an investment firm, Engaged Capital LLC, which owns 14.6%, began agitating for changes to boost shareholder value.

Outercall’s net income declined 58.4% in 2015 to $44.3 million from $106.6 million the year before. Revenues slipped 4.3% to $2.19 billion from $2.29 billion in 2014, according to the company’s fourth-quarter earnings report filed in February.

Redbox brought in just over 80%, or $1.76 billion, of Outerwall’s total revenues last year. Coinstar generated $318.6 million, or 14.5% of 2015’s revenues, up 0.9%.

But Redbox, which had 40,480 kiosks at the end of 2015, is under heavy pressure from Netflix Inc., Amazon.com Inc., and other streaming video services. Its revenues fell 6.4% in 2015, and in the fourth quarter, rentals declined 24% to 135.8 million from 179.5 million a year earlier.

Coinstar transactions also are slipping, but not as much as Redbox’s. Transactions totaled 70.8 million last year from 20,930 kiosks, down 3% from 73 million in 2014. In that year, the transaction count slipped 4.2% from 76.1 million in 2013. Coinstar kiosks, many located in grocery stores, charge a transaction fee and dispense vouchers good for cash, and a limited number of Coinstar Exchange kiosks exchange gift cards for cash vouchers.

Founded in 1991, Coinstar posted its 100 millionth transaction in 2001 and by 2004 had kiosks in all 50 states. The next year it made its first investment in then-fast-growing Redbox, and acquired full ownership of the company in 2012. Coinstar changed its corporate name to Outerwall in 2013.

Outerwall’s third major segment is ecoATM, a network of 2,250 kiosks where consumers can sell old cell phones for cash and buy certain electronic devices. EcoATM generated $113.6 million in revenues last year, up 20.6%.