Chicken Soup for the Soul Entertainment
The deal calls for each Redbox share to be converted to 0.087 Chicken Soup shares, with a current value a little north of $1 a share. The transaction is likely to be completed in the next day or two, bringing to an unhappy end a weirdly quixotic meme stock story.
Chicken Soup (ticker: CSSE) is scheduled to announce June-quarter financial results after the close of trading on Thursday, and the company is likely to also announce completion of the deal.
In a typical merger, the target company’s shares tend to trade at an increasingly narrow discount as deal completion approaches. But Redbox shares (RDBX) for months now have been trading dramatically—and illogically—above the value of the transaction.
Redbox operates a network of 38,000 DVD rental kiosks, largely targeting customers who don’t have broadband access or who choose not to use streaming services. The company attempted with little success to diversify into digital-streaming services. Chicken Soup operates Crackle and other ad-supported video streaming services, and sees synergies in the combination.
The deal bails out Redbox from a potential bankruptcy. As of March 31, it had $349.3 million in debt, against just $9.8 million in cash. Without the deal, Redbox has said, there would be “substantial doubt” about its ability to remain a going concern.
Redbox shares have traded wildly, and illogically, from the day the deal was announced in May. The stock at one point in June traded as high as $18.20 a share. There was never any sign of an alternative bidder, and there was no chance Redbox could raise more capital as an alternative to selling the business, given its severe financial straits.
Redbox shares were down 40%, at $2.10, in recent trading. Chicken Soup shares were spiking 16%, at $13.11. At that price, each Redbox share is worth about $1.15 of Chicken Soup shares. Barring a further huge spike in Chicken Soup shares, Redbox hasn’t hit bottom yet.
But the irony is that Chicken Soup shareholders appear wildly bullish about the transaction—the company’s shares have rallied more than 80% since the Redbox deal was first announced.
Write to Eric J. Savitz at email@example.com