Redbox Shares Are Defying Gravity. Look Out, Below.

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Redbox Entertainment has become the new favorite meme stock of the market. It’s not going to end well.

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Best known for its network of 38,000 DVD rental kiosks, Redbox (ticker: RDBX) earlier this month agreed to be acquired by Chicken Soup for Soul Entertainment (CSSE) in a stock swap, ad- Owns a bunch of supported streaming services. Under the terms of the deal, Chicken Soup will assume a $321 million Redbox loan, and issue 0.087 shares for each outstanding Redbox share.

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So here’s the crazy part. Under that formula, each Redbox share would be exchanged for chicken soup shares, which now cost about 59 cents. But Redbox isn’t trading at 59 cents. Late Friday, the stock was quoted at $7.71, which was actually down 10 cents that day. The stock has nearly doubled in price over the past six trading days, leading Redbox shares to rise more than 13 times.

It’s also worth noting that the trading volume at Redbox seems almost impossibly high. In the past six days, Redbox has traded around 220 million shares. But only 12.6 million of the company’s free-trading Class A shares remain outstanding.

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Another 32.8 million shares are held by investment firm Apollo Capital. As Barron detailed in a previous story on the deal, Apollo’s stake has a long history. In 2016, former Redbox parent Outerwall was taken private by Apollo for $1.6 billion. In addition to Redbox, Outerwall owns Coinstar kiosks (to capitalize on loose change) and EcoATM electronics-recycling kiosks. Apollo still owns Coinstar, and holds a majority stake in EcoATM.

Last October, Apollo took Redbox public through a merger with a special-purpose acquisition company, or SPAC, called Seaport Global Acquisition Corp. Within days of the completion of the deal, Redbox shares traded at up to $20. But the stock soon caught on in late 2021 selling technology shares, and ended the year at $7.41.

Apollo retained majority control after the SPAC merger closed. According to Chicken Soup, it holds about 80% of the outstanding Redbox shares, including the conversion of some debt. Apollo will own about 15% of Chicken Soup once the deal is completed.

When asked about the situation, Xia Lavando, the head of investor relations for Redbox, declined to clarify on Friday. “We cannot comment on where the stock trades relative to the valuation implied in the merger agreement,” she said via email.

Chicken Soup CEO William Rouhana previously reported baron’s He expects the transaction to close within the next two to three months.

On Friday, B. Riley analyst Eric Wold cut his rating on Redbox shares from neutral to sell, with a price target of $1, down from $3. Wold acknowledged that it is possible that investor interest and speculative “meme” trading could create ongoing volatility in the stock, and potentially drive the price even higher, but added that valuations “ultimately correct themselves.” will do.”

Wold noted that controlling shareholders of both companies have already approved the deal, there are no regulatory concerns, and in his view, there is “very little risk” that the deal will not close.

Once a real stock, Redbox shares are now all about a game of chicken. Unless you think chicken soup shares are skyrocketing from here — the stock has actually sold 6% since the deal was announced, reducing the implied valuation — then owning Redbox shares is just a prerequisite. How far can they rally before the inevitable collapse? , At some point, chickens will come to roam the house.

Eric J. Write Savitz to [email protected]

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