Redbox Entertainment, the struggling DVD kiosk and streaming video company, has set a deal to be acquired by Chicken Soup for the Soul Entertainment in an all-stock transaction.
The company will operate more than 38,000 kiosks across the U.S. as well as digital media services spanning ad-supported and transactional video services, including Crackle, the streaming service Chicken Soup for the Soul Entertainment bought from Sony Pictures Television in 2019.
The deal is valued at $375 million, comprising about $50 million in Chicken Soup for the Soul Entertainment stock and the new company’s assumption of $325 million in debt.
The deal comes after Redbox in October 2021 became a publicly traded company after merging with a special purpose acquisition company (SPAC). But the company hit a steep drop-off in business and has reported mounting net losses, leading Redbox last month to lay off 150 employees, about 10% of its workforce.
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Shares of Redbox are down more than 35% on news of the deal, while Chicken Soup for the Soul Entertainment’s stock fell more than 10% in midday trading.
With the merger, the companies see an opportunity to carve out market share at the lower end of the streaming space, targeting value-conscious consumers — amid a deluge of “high-priced subscription services” and the “macro backdrop of rising inflation and economic uncertainty,” according to Bill Rouhana Jr., chairman and CEO of Chicken Soup for the Soul Entertainment.
“Today marks a transformative moment for Chicken Soup for the Soul Entertainment and an inflection point for the ad-supported streaming industry,” Rouhana said in announcing the deal. “Our acquisition of Redbox will accelerate the scaling of our business as it combines complementary teams and services to create the streaming industry’s premier independent AVOD.”
Redbox CEO Galen Smith commented, “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.”
Chicken Soup for the Soul Entertainment said it expects the Redbox deal to be accretive to adjusted EBITDA in 2023, “with numerous opportunities to cross-sell each company’s customer base across digital properties.” For example, the new company plans to distribute Screen Media titles via Redbox kiosks. The CSSE said it expects to deliver annual run-rate cost synergies of more than $40 million in 2023 and that the combined company will end 2022 with a run-rate exceeding $500 million in revenue and adjusted EBITDA of $100 million-$150 million.
Redbox has 40 million customers signed up for its loyalty program. Rouhana also pointed to Redbox’s “high-potential digital television assets,” which includes more than 130 FAST (free, ad-supported television) channels on its platform and electronic sell-through and premium VOD services. “Together, we will build a fully developed AVOD and FAST streaming business: proven branded streaming services, formidable content and production capabilities, and a strong AVOD and FAST ad sales operation,” Rouhana said.
Under the terms of the agreement, which has been approved by the boards of both companies, Redbox stockholders will receive a fixed exchange ratio of 0.087 of a share of class A common stock of Chicken Soup for the Soul Entertainment per Redbox share. Following the close of the transaction, Chicken Soup for the Soul Entertainment shareholders will own 76.5% of the combined company and Redbox stockholders will own approximately 23.5% of the combined company on a fully diluted basis.
The companies expect the deal to close in the second half of 2022, subject to regulatory approvals and other customary closing conditions. Upon closing, the combined entity will retain the name Chicken Soup for the Soul Entertainment and will continue to trade under the ticker symbol “CSSE” on the Nasdaq stock exchange.
According to the companies, Redbox stockholders holding approximately 86% of the Redbox voting power have approved the transaction. Chicken Soup for the Soul Entertainment stockholders holding 91% of the voting power of the company OK’d the deal.
Chicken Soup for the Soul Entertainment, whose parent company owns the rights to the best-selling series of self-help books, owns and operates a variety of ad-supported VOD streaming services including Crackle, Chicken Soup for the Soul, Popcornflix, Popcornflix Kids, Truli, Pivotshare, Españolflix and FrightPix. The company also acquires and distributes video content through its Screen Media and 1091 Pictures subsidiaries and produces original video content through the Chicken Soup for the Soul Television Group.