DVD rental and streaming company Redbox Entertainment Inc (NASDAQ:RDBX) was the subject of a takeover offer Wednesday, or what some are calling a takeunder offer due to the acquisition price being less than the price of the stock. Here are the details.
What Happened: Streaming company Chicken Soup for the Soul Entertainment Inc (NASDAQ:CSSE) announced plans to acquire Redbox in a deal that will create a “leading independent, integrated direct-to-consumer media platform delivering premium entertainment for value conscious consumers.”
The companies said the acquisition would increase the scale and reach of the two brands with a strong library of content, over 38,000 rental kiosks nationwide and a Redbox Perks membership of over 40 million people.
“Today marks a transformative moment for Chicken Soup for the Soul Entertainment and an inflection point for the ad-supported streaming industry,” Chicken Soup for the Soul Entertainment CEO William J. Rouhana Jr. said.
Redbox called Chicken Soup for the Soul Entertainment the ideal partner.
“By joining forces, we will accelerate Redbox’s transition from a physical to high growth digital media company and be the only entertainment provider truly focused on value for consumers,” Redbox CEO Galen Smith said.
The companies expect to have a run rate of $500 million in revenue for fiscal 2022 and adjusted EBITDA of $100 million to $150 million.
Related Link: DVD Rental Company Redbox Going Public Again In SPAC Merger: What Investors Should Know
Questionable Deal Terms: Both company boards approved the deal that was announced Wednesday morning.
Redbox shareholders will receive a fixed ratio of 0.087 per share of Chicken Soup for the Soul Entertainment for each Redbox share they own.
Chicken Soup for the Soul Entertainment shares are trading at $7.46 at the time of writing, making the 0.087 share worth $0.649 for each Redbox share owned.
Redbox shares closed at $5.60 on Tuesday and hit highs of $5.98 on Wednesday, both significantly higher than the takeover price being paid.
Merger and arbitrage expert Julian Klymochko shared on Twitter that the deal was one of the largest discounts he has ever seen as a “takeunder.” Klymochko, who is the CEO of Accelerate, said that takeunders are typically forced by creditors.
Klymochko cautioned to anyone buying Redbox shares at $5 that they could lose 86% of their investment due to the deal terms. Klymochko later pointed out that the filing shows that Redbox could default on its debt if the acquisition doesn’t close.
Given the unique price of the deal terms, Benzinga reached out to Chicken Soup for the Soul Entertainment, which confirmed the 0.087-share figure is not a typo.
The Fine Print: Chicken Soup for the Soul Entertainment will own 76.5% of the combined company after the deal is completed and Redbox will own 23.5% of the combined company.
The deal is expected to close in the second half of 2022 with the combined company keeping the Chicken Soup for the Soul Entertainment name and CSSE ticker.
Redbox recently topped the Fintel short squeeze leaderboard with 61.6% of the float short and a cost to borrow of 597%. This could make shorting shares difficult and pricey going forward.
RDBX, CSSE Price Action: Redbox shares were down 32.5% at $3.78 midday Wednesday, according to Benzinga Pro.
Chicken Soup for the Soul shares were down 6.82% at $7.38.
