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Coinstar Buys Remaining Redbox Stake, Swings To Profit In Q4

Posted On: 2/16/2009

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Keywords: Coinstar, Redbox, McDonalds affiliate,  self-service coin-counting, GetAMovie, dvd, 7-Eleven, organic growth, acquisition growth, profit, Q4

BELLEVUE, WA -- Coinstar Inc. reported on Feb. 12 that it has inked a deal with a McDonald's affiliate to take full ownership of Redbox Automated Retail LLC. The company, best known for its self-service coin-counting machines, announced the deal along with its fourth-quarter financial results and first-quarter estimates, which beat Wall Street's predictions.

Coinstar plans to pay $10 million in cash and 1.5 million shares of common stock to McDonald's GetAMovie, which owns a 44.4% stake in Redbox. Coinstar also has made similarly structured arrangements with Redbox's remaining minority interest holders to bring the Bellevue, WA, company's stake -- currently at 51% -- to 100%. Coinstar estimates that the cash-and-stock transaction, which is expected to become final on Feb. 26, will cost between $155.5 million and $175.9 million.

Redbox is the nation's leading renter of DVDs through self-service kiosks, which are operated in select McDonald's restaurants, grocery stores, and Walmarts and Walgreens. Coinstar says Redbox rental machines are placed in some 12,000 locations and have so far served 35 million unique customers.

In January, 7-Eleven revealed plans to roll out Redbox machines in half its stores by the end of 2009. The announcement was made following a pilot launch at 7-Eleven convenience stores in Orlando, FL, and Reno, NV. See story here


"Redbox has been a great addition to our '4th Wall' product portfolio, and we are very enthusiastic about the DVD rental kiosk market having seen tremendous growth and acceptance over the past few years," said Coinstar chief operating officer Paul Davis. "Redbox has a strong business model and management team and we look forward to seeing continued growth as a combined company."


Separately, Coinstar announced that its fourth-quarter profit was $4.2 million, or 15¢ a share, compared with a loss in the year-ago period of $37.2 million, or $1.34 a share. The prior-year quarter included a $65 million impairment loss and inventory writeoff. Revenue for quarter, ended Dec. 31, nearly doubled to $261 million, as Coinstar consolidated into its statements its Redbox DVD rental business.

The company anticipates its 2009 revenue to be between $1.2 billion and $1.3 billion. Revenue for the first quarter will be $260 million to $270 million, with earnings at 4¢ to 10¢ a share.

Over the past year, organic- and acquisition-related growth in Coinstar's DVD, money transfer and coin- counting vending businesses were key drivers. Between Dec. 31, 2007, and Dec. 31, 2008, the company's installed base of coin-counting machines grew from 15,400 to 18,400; POSA terminals from 17,500 to 23,000; and DVD rental kiosks from 7,000 to 13,700. The base of skill cranes and bulk vending machines dropped from 28,000 to 21,000 and 252,000 to 124,000, respectively.