Outerwall to be acquired by Apollo in $1.6bn deal

September 2016 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

Outerwall Inc, the owner of Redbox DVD rentals and Coinstar cash-exchange kiosks, has entered into a definitive merger agreement that will see the company acquired by private equity firm Apollo Global Management LLC in a transaction valued at approximately $1.6bn, including net debt.

Under the terms of the agreement, affiliates of certain funds managed by Apollo, together with consolidated subsidiaries, will acquire all of the outstanding shares of Outerwall common stock for $52 per share in cash.

The purchase price represents a premium of approximately 51 percent over Outerwall’s closing stock price as of 14 March 2016. Furthermore, the transaction will be completed through an all-cash tender offer, with the Outerwall board of directors unanimously recommending that shareholders tender their shares as part of the offer.

In addition, on 24 July 2016, the Outerwall board of directors declared a quarterly dividend of $0.60 per share of common stock. This dividend is expected to be paid to stockholders on 6 September 2016 at the close of business on 23 August 2016.

“Outerwall’s Board of Directors has undertaken a comprehensive review of a wide range of strategic and financial alternatives to maximize value for all Outerwall shareholders,” said Erik E. Prusch, Outerwall’s chief executive. “We are pleased to reach this agreement, which follows a robust process and provides an immediate and substantial cash premium to our shareholders.

“Apollo is an ideal partner to support Outerwall’s efforts to continue serving our millions of loyal customers and dedicated retail partners through our unrivalled 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.”

With more than 20 years of experience creating some of the most profitable spaces for their retail partners, Outerwall kiosks can be found in neighbourhood grocery stores, drug stores, mass merchants, malls and other retail locations in the United States, Canada, Puerto Rico, the United Kingdom and Ireland.

“We are extremely excited for our funds to acquire Outerwall,” said David Sambur, a partner at Apollo, a leading global alternative investment manager with over $170bn in assets under management. “Outerwall is 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.”

Outerwalls’ second largest shareholder, with a 14.1 percent stake as of 2 June 2016, is activist investor Engaged Capital LLC, which has been urging Outerwall for several months to explore strategic and financial alternatives, including the option of going private.

Serving as financial adviser to Outerwall is Morgan Stanley & Co LLC with Wachtell, Lipton, Rosen & Katz and Perkins Coie LLP serving as legal counsel. For Apollo, LionTree Advisors, Bank of America Merrill Lynch, Barclays, Credit Suisse and Jefferies LLC are acting as M&A advisers with Paul, Weiss, Rifkind, Wharton & Garrison LLP acting as legal adviser. Financing for the transaction is being provided by Bank of America Merrill Lynch, Jefferies Finance LLC, Barclays and Credit Suisse.

The Outerwall/Apollo transaction is conditioned upon satisfaction of the minimum tender condition, which requires that shares representing more than 50 percent of Outerwalls’ common shares be tendered, and the receipt of certain regulatory approvals and other customary closing conditions.

The transaction is currently expected to close during the third quarter of 2016. Following the transaction, Outerwall will become a privately held company and its common shares will no longer be listed on any public market.

Fraser Tennant