Redbox Parent Outerwall Stock Rises as Activist Investor Discloses Stake

12:09 PM PST 10/07/2013 by Paul Bond

Jana Partners says the company needs to cut costs, shed businesses and consider an outright sale.

Shares of Redbox parent Outerwall popped 12 percent early Monday before settling into a 4 percent gain in midday trading after Jana Partners disclosed it has taken a 14 percent stake in the company and that it is advocating changes to boost shareholder value.

Jana said in a regulatory filing late Friday that it holds 3.8 million shares of Outerwall, a company whose primary businesses are coin-counting machines and the Redbox DVD kiosks, and that it encourages management to cut costs, discontinue certain businesses or sell the entire operation in order to drive the stock higher.

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Outerwall, which used to be called Coinstar, also recently added a new business called ecoATM, which consists of kiosks where consumers can buy mobile phones and other small technological gadgets.

Jana is a hedge fund run by activist investor Barry Rosenstein, who has stakes in Groupon, Office Depot and other companies he deems undervalued.

On Monday, a couple of analysts weighed in with nearly opposite opinions. Piper Jaffray reiterated its "overweight" rating and said the stock should trade in the low $70-range, while on Friday it closed at $57.10.

On the other hand, the firm Monness Crespi Hardt reiterated its "sell" rating on the stock and $30 price target, arguing that the DVD rental business is in "irreversible decline."

Outerwall said in a filing that it "welcomes the opinions of its shareholders and is always open to constructive input toward the goal of enhancing shareholder value."

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