National Entertainment Network Acquires Coinstar's Entertainment Division

Posted On: 9/10/2009

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Coinstar, National Entertainment Network Inc., vending, vending machine, vending route, vending business, vending news, coin-op news, coin-operated machines, bulk vending, gumball machine, arcades, arcade games, skill cranes, claw machines, videogames, jukebox, pinball machine, Kevin J. Wall, self-service kiosk, Redbox, DVD rental machines, kiddie rides

BELLEVUE, WA -- Coinstar Inc. has sold its entertainment services business to National Entertainment Network Inc., a newly formed company based in Louisville, CO. The sale includes assets associated with bulk vending, kiddie rides, skill cranes and videogames. Founded in 1991 to provide self-service coin-counting machines to retail establishments, Coinstar has since grown through acquisitions to become the largest operator of bulk vending and skill crane machines.

Coinstar, headquartered here, said it received "nominal consideration" for the business and expects to record a pretax loss of $52 million to $57 million. However, the loss is expected to be offset by a one-time tax benefit estimated at between $82 million to $87 million.

According to company officials, the sale will allow Coinstar to focus on its self-service retail businesses, including the popular Redbox movie-rental kiosks and coin-exchange machines. "Our core DVD and coin kiosk businesses provide a solid foundation and, with the sale of our entertainment services business, we are better positioned to maximize the substantial market opportunity in automated retail," said Coinstar chief executive Paul Davis.

A privately held company, National Entertainment Network was formed in August 2009 in anticipation of the purchase of the Coinstar division. The acquisition makes it the largest operator of bulk vending, kiddie rides, skill cranes and videogames in North America's supermarkets, shopping malls, restaurants and "big box" stores.

The new vending operation will function as a standalone company headed by president and chief executive Kevin J. Wall, who possesses 20 years experience in the coin-operated management business. William L. Lewis and Richard Gerhardt Sr. are among the other principals.

"We feel there is strong potential to grow this company and make it successful," Wall said "We recognize that there are significant challenges facing our industry with potential new government regulation and volatile petroleum prices among other factors, however, with a strategic vision and a new business plan we will boost sales, eliminate inefficiencies and improve customer service elements."

The sale of Coinstar's entertainment division signals the end of the company's aggressive move into the coin-op arena that began in 2004 with its purchase of Louisville, CO-based American Coin Merchandisers Inc. (dba SugarLoaf Creations) for more than $200 million in cash. Along with the purchase, the company acquired Folz Vending, a company with more than half a century in the industry, which ACMI had acquired a year earlier. That purchase included routes that were estimated to total more than 160,000 machines and 40,000 distribution points in all 50 states. At the time of the purchase, Coinstar ran coin-counting machines, e-payment kiosks and prepaid phone card venders in approximately 25,000 U.S. locations.

In 2005, the company purchased its next-largest competitor in the bulk vending and entertainment field, The Amusement Factory LLC (Van Nuys, CA). A relative newcomer to bulk vending, The Amusement Factory had itself been on an acquisition shopping spree during the previous few years, buying up midsize operating companies across the country. The purchase, for a reported $36 million in shares of the company's common stock, not only eliminated a major competitor but also beefed up Coinstar's presence in the field, adding some 14,000 locations to its portfolio.

With two major acquisitions in as many years, Coinstar emerged as the largest bulk vending, kiddie ride and skill crane operator in the country. At the time, company officials said this unprecedented size would result in increased efficiencies and purchasing power. Coinstar's aggressive moves into bulk vending, kiddie rides and skill cranes were also said to be part of the company's "4th Wall" front-of-store strategy intended to create profit centers at the front of supermarkets and other retail outlets in "real estate" that typically lay dormant or underutilized.

In February 2009, Coinstar acquired Redbox Automated Retail LLC, a McDonald's affiliate. It paid $10 million in cash and 1.5 million shares of its common stock to McDonald's GetAMovie, which then owned a 44.4% stake in Redbox. Coinstar also made similar cash-and-stock purchase agreements with Redbox's remaining minority interest holders to assume full ownership of the DVD rental company.

Coinstar's products and services can be found in more than 90,000 locations in North America.

Coinstar's New Public Offering

Coinstar announced that it has commenced a public offering of $175 million of convertible senior notes due in 2014. The notes will be convertible into cash up to the principal amount and into shares of Coinstar common stock if the notes are worth more than the principal. Coinstar said it will grant the underwriters an option to purchase up to an additional $25 million of convertible senior notes. The proceeds from the offering will reportedly be used to repay Coinstar's term loan under its senior secured credit facility and to pay down money drawn from its outstanding $400 million revolving line of credit.