Engaged Capital urges Outerwall to go private, among options

(Reuters) - Outerwall Inc's OUTR.O second-largest shareholder Engaged Capital LLC urged the company to explore strategic options, including taking the owner of Redbox video rental kiosks private.

The hedge fund, which has a 14.6 percent stake in Outerwall, said the company should halt its share repurchase program and sell or shut down its phone recycling business ecoATM, among other options.

Outerwall’s shares were up 5.6 percent at $32 in morning trading. The company, earlier known as Coinstar, generates most of its revenue from the Redbox kiosk business it acquired in 2008, which offers movie and videogame discs for rental.

In a statement, Outerwall said some of Engaged Capital’s recommendations are consistent with many initiatives already underway at Outerwall, including managing both Redbox and Coinstar for profitability and cash flow.

Engaged Capital, led by Glenn Welling, also said Outerwall had rebuffed suitors on at least three occasions last year by either not responding to them or insisting that it was not for sale.

In a letter to Outerwall’s board, the hedge fund said Outerwall’s underperformance was because of the board’s “failed strategies, flawed capital allocation policies, and misaligned governance.”

Engaged also said the board had “squandered” about $1.2 billion of shareholder capital, more than double of Outerwall’s current market value.

Engaged Capital also said it would be open to nominating directors at Outerwall’s annual meeting in June.

Outerwall also said that the company’s executive management team and the chairman of the board have engaged in several discussions with Engaged Capital.

Bloomberg reported on Feb. 8 about Engaged Capital’s calls for a sale to private equity suitors.

Reporting by Anya George Tharakan in Bengaluru; Editing by Ted Kerr, Don Sebastian and Shounak Dasgupta