Another day, another premarket rally for Redbox Entertainment shares, which surge and drop like a rollercoaster amusement ride. The legacy kiosk disc rental company’s shares have become a meme stock, subject to the whims of mob rule among day traders and short squeezers transacting more than 20 million shares daily — and little to do with the company’s fiscal fundamentals.
The ongoing drama plays out against the backdrop of a corporate merger that would see AVOD operator Chicken Soup for the Soul Entertainment acquire Redbox for $375 million. With Redbox shares up more than 12% in June 16 trading, the company’s market cap is approaching $500 million — making the deal appear undervalued on paper.
Earlier this month, Redbox, in an effort to raise funding for capital expenses, issued a regulatory filing for separate warrants to acquire millions of new Class A Common stock. The move resulted in a modest bump in the share price and was seen as a positive by B. Riley Eric Wold.
“Given our continued belief in the opportunity for the Redbox kiosk network to address the ongoing content needs of the target demographic (e.g., late technology adopters and price-sensitive consumers) — especially in an environment where SVOD platforms are beginning to hit a subscriber wall — we saw the value of additional financing to help [Redbox] get past the current content drought,” Wold wrote in a note.
Wold contends the extra financing could expedite the “digital growth strategies that have been put on hold or delayed as management sought out additional liquidity options.”
Regardless, six days later, Redbox disclosed it would be giving separate bonuses of $550,000, $300,000 and $250,000 to CEO Galen Smith, chief digital and strategy officer Jason Kong, and chief operating officer Michael Chamberlain, respectively, should they remain with the company following consummation of the Chicken Soup for the Soul Entertainment deal. The executives still get the bonuses if they are terminated post-ownership change.