June 8, 2022
Redbox Entertainment’s stock June 8 jumped 20% to $10.31 per share in pre-market trading — the day after closing up 25% at $8.55 per share.
The legacy kiosk disc rental service is set to be acquired by Chicken Soup for the Soul Entertainment, owner/operator of the ad-supported Crackle+ streaming platform, in an all-stock transaction valued at $375 million. The company is transitioning from a packaged-media focus to digital distribution, including ad-supported and transactional VOD, as well as free ad-supported streaming television, or FAST.
The company June 3 offered more than 60 million shares of Class A common stock in three separate purchase warrants for 6 million, 10.7 million and 32.7 million shares, respectively. The warrants are apparently fodder for “meme” investors eager to jump on the bandwagon of a company whose shares are priced low and easily prone to roller coaster shifts in valuation.
“Meme investors think the company is worth nearly $1 billion ($500 million of equity and $400 million of debt) and are baffled why a money-losing company with … zero cash would sell for close to zero,” Michael Pachter, media analyst with Wedbush Securities in Los Angeles, said in an email.
Pachter believes the initial 6 million shares for sale allows warrant holders to convert and sell at the market rate, and that Redbox doesn’t get any of those proceeds, other than a conversion of existing warrants.
“The stock might be up on that, but if my reading is correct, the meme traders are making a huge mistake,” he said.