Chicken Soup Completes Redbox Acquisition, Ending a Weird Meme-Stock Tale

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Chicken Soup for the Soul Entertainment

 has finished its purchase of

Redbox
,
winding up one of this year’s strangest meme-stock episodes.

Chicken Soup (ticker:

CSSE

), parent of Crackle and other ad-supported streaming video services, takes on the Redbox network of 36,000 DVD rental kiosks, along with its own modest streaming video business. Redbox holders received 0.087 Chicken Soup shares for each Redbox share. At Chicken Soup’s closing price Wednesday of $14.75, Redbox holders got $1.28 worth of the former company for each share held.

Redbox stock closed Wednesday, its final day of trading, at $1.65, down 53%.

The deal bails out Redbox from a potential bankruptcy. As of March 31, Redbox had $349.3 million in debt, against $9.8 million in cash. Without the deal, Redbox had said, there would be “substantial doubt” about its ability to remain a going concern.

Spurred on by retail investors hoping they could turn Redbox into another

GameStop

(GME), Redbox shares in recent months traded illogically to multiples of the deal price. In June, the stock traded as high as $18.20 a share. While there was plenty of speculation about the potential for an alternative bidder, or a round of financing that could rescue Redbox without selling the company, none of that transpired.

In announcing completion of the deal, Chicken Soup said that thanks to the acquisition, it now expects annual revenue to more than triple to about $500 million. Chicken Soup has more than 145 free ad-supported TV channels and a transactional video on demand business in addition to the Redbox kiosk network.

Chicken Soup said former Redbox CEO Galen Smith becomes executive vice chairman of both Chicken Soup and Redbox, with a focus on “future growth plans,” including strategic acquisitions. The company also named Jonathan Katz, a former senior executive at Scripps Networks and Turner Broadcasting, as its president.

Chicken Soup said it expects to exit 2022 with a run-rate adjusted Ebitda, or earnings before interest, taxes, depreciation, and amortization, of between $100 million and $150 million. Chicken Soup expects more than $40 million in cost synergies from the transaction in 2023. After the deal, previous Chicken Soup holders own about 76.5% of the combined company, and former Redbox holders own 23.5%.

Late Thursday, Chicken Soup reported second-quarter revenue of $37.6 million, up 70% from a year ago, with a net loss of $20.4 million, or $1.39 a share, and adjusted Ebitda of $5.6 million.

The completion of the deal puts an end to Redbox’s relatively recent—and unhappy—return to the public markets after a long hiatus.

In 2016, former Redbox parent Outerwall was taken private by

Apollo

Global Management for $1.6 billion. In addition to Redbox, Outerwall owned Coinstar kiosks for cashing in loose change and the ecoATM electronics-recycling kiosks. Apollo still owns Coinstar, and holds a majority stake in ecoATM.

Last October, Apollo took Redbox public via a merger with a special-purpose acquisition company, or SPAC, called Seaport Global Acquisition Corp. Within days of the completion of the deal, Redbox shares traded for as much as $20. But the stock soon got caught up in the late 2021 selloff of technology shares, and ended the year at $7.41.

Redbox attempted to pivot from DVD rentals to streaming, but that move failed. By February, the company was in serious financial straits. That month, the company disclosed that it had maxed out its revolving credit facility, and was cutting costs, delaying capital investment, and considering strategic alternatives.

Chicken Soup shares on Thursday fell 3.9%, to $14.18. The stock was off another 5.6% in late trading, to $13.39. Before the after-hours dip, the stock had roughly doubled since the Redbox deal was announced in May.

Write to Eric J. Savitz at [email protected]