An activist hedge fund has urged the parent company of Redbox to go private and take other steps to create “immediate and sustainable shareholder value.”
Engaged Capital, the second-largest shareholder in Outerwall, said “persistent failures” by the company’s board and management were to blame for a negative 29% absolute return to investors over the past five years.
Outerwall stock is down 62% since last July amid investor concerns over declining rentals and games at its self-service kiosks in retail stores. In a fourth-quarter earnings report released earlier this month, the company reported a 17% decline in Redbox revenue and a 50% drop in its operating income.
“In particular, speculative growth strategies, reckless capital allocation and poor corporate governance have all meaningfully contributed to the decline in [Outerwall’s] stock price,” Engaged’s Chief Investment Officer Glenn Welling said in a letter to the board.
“This disastrous track record has impaired the company’s valuation, as [Outerwall’s] depressed stock price reflects investors’ expectations that this history of value destruction will continue,” he added.
Welling recommended, among other things that Outerwall cease investing in any new businesses and all acquisition activity, aggressively manage Redbox and its Coinstar coin-redemption kiosk businesses for cash generation rather than growth, and shut down ecoATM, a line of kiosks that let people trade in used electronics for cash.
The recommendations should deliver “significant value” to shareholders, Welling said, but Outerwall’s board should begin a sales process with the goal of taking the company private.
Outerwall responded in a statement that it was “unfortunate that Engaged Capital has chosen to initially share its views in a public forum without first discussing them with” the company.
“Indeed, some of Engaged Capital’s recommendations are consistent with many initiatives currently underway at Outerwall, including managing both Redbox and Coinstar for profitability and cash,” the statement said.
Engaged disclosed earlier this month that it had acquired a 14.6% stake in Outerwall. According to Welling, the board has squandered about $1.2 billion of shareholder capital on investments in new businesses that have failed and on share repurchases that didn’t boost the stock price.