Apollo to buy Redbox owner for $1.6 billion

Investment firm Apollo Global Management is set to acquire Outerwall, owner of struggling DVD-rental kiosk chain Redbox, for $1.6 billion.

New York-based Apollo will acquire Outerwall’s outstanding shares of common stock for $52 each. The allcash deal, which was announced Monday, includes net debt and is expected to close in the third quarter. Outerwall will become a privately held company after the sale.

The transaction was unanimously approved by Outerwall’s board of directors. The Bellevue, Wash., company also owns Coinstar, a chain of kiosks that convert loose change into paper currency.

Outerwall’s growth has been stunted in the wake of Redbox’s ongoing financial difficulties. The automated kiosks, which offer Blu-ray, DVD and video game rentals, have struggled to compete with digital streaming services such as Netflix. Redbox is one of the last major retailers that offer physical film and video game rentals.

Outerwall estimated that it would close as many 2,000 Redbox kiosks this year. It had 40,480 kiosks as of Dec. 31.

Redbox partnered with Verizon to launch a streaming service in 2013, but it failed to gain significant traction and was shut down the following year. Although the company began quietly testing a new streaming service titled Redbox Digital last week, the service is in its early stages and is not open to the public.

Shares in Outerwall jumped $5.28, or 11.3%, to $52.19 on Monday. The shares were worth nearly $82 a year ago. Apollo shares fell 6 cents to $16.49.

Though Outerwall’s Coinstar business has continued to enjoy success, Redbox’s revenue plummeted 19% in the first quarter to $421.5 million.

Outerwall generated $536 million revenue in the first quarter, down 12% from a year earlier, though net income rose 8% to $38.5 million.