In an all-stock deal struck designed for the current high-inflation economic environment facing streaming consumers, Crackle parent Chicken Soup for the Soul Entertainment is acquiring Redbox.
The value of the deal is about $375 million, most of which is the assumption of Redbox debt.
Founded in the heyday of DVDs two decades ago, Redbox is best known for its network of 38,000 bright red, disk-dispensing kiosks at convenience and grocery stores. It has more recently expanded into streaming and production. It went public last fall in a $693 million SPAC merger with Seaport Global Acquisition Corp. The stock initially rose past $15 a share but has hit the rocks in recent months, dipping as low as $1.61. The company was forced to lay off 10% of its staff and said it was looking at strategic alternatives.
The acquisition will fortify Chicken Soup for the Soul in the booming sector of ad-supported video on demand, or AVOD. The IAB, an industry trade group, last week reported that connected-TV advertising jumped 57% in 2021 compared with 2020 to reach $15.2 billion. Top-end players like Disney and Netflix have recently announced plans for ad-supported tiers of their services. Well-funded rivals like HBO Max, Peacock and Paramount+ also have advertising as part of their subscription offerings, and free outlets like Pluto, Tubi and Amazon Freevee have seen significant growth, as has Chicken Soup’s streaming portfolio.
In addition to Crackle, which it acquired from Sony in 2020, Chicken Soup for the Soul operates an eponymous service that launched last fall as well as Popcornflix. The company has also bought content outfits like Screen Media, 1091 Pictures and Sonar Entertainment over the past few years.
The transaction, which has been approved by the boards of directors of both companies, calls for Redbox stockholders to get 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. After the close of the deal, which is expected in the second half of 2022, Chicken Soup for the Soul Entertainment stockholders will own about 76.5% of the combined company. Redbox stockholders will own roughly 23.5% of it. The company will continue to trade on the Nasdaq under the ticker symbol CSSE.
In the deal announcement, Chicken Soup for the Soul Entertainment said the combination is expected to help its bottom line in 2023. It touted the opportunities to cross-sell each company’s customer base across digital properties, distribute Screen Media titles via Redbox kiosks and leverage technology and expertise to scale Redbox’s AVOD operation. Redbox has also ramped up in free, ad-supported television (FAST), an emerging area with echoes of traditional pay-TV. The company expects cost synergies of more than $40 million in 2023. Chicken Soup for the Soul Entertainment said the combined company will end 2022 with $500 million of revenue and $100 million to $150 million of adjusted EBITDA.
“Today marks a transformative moment for Chicken Soup for the Soul Entertainment and an inflection point for the ad-supported streaming industry,” CEO William J. Rouhana Jr. said. “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 has 40 million customers in its loyalty program and high-potential digital television assets including carriage of over 130 FAST digital channels on its Free Live TV platform, as well as a robust TVOD and PVOD platform. 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.”
Redbox CEO Galen Smith said the deal 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 stockholders, he continued, will be able to participate in the “significant near- and long-term upside potential of a diversified and growing company with greater scale and resources.”
Market conditions favor the merger, Rouhana said, with cord-cutting continuing and a flock of higher-priced subscription services having hit the market over the past few years. “Near term, these conditions are even more acute against a macro backdrop of rising inflation and economic uncertainty,” he said. “We believe that we will be able to deliver more exciting premium entertainment for millions of value conscious viewers and drive further growth and value creation for our stockholders.”
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