The deal is comprised of $50 million in Chicken Soup stock and the assumption of $325 million of Redbox’s debt.
Under the terms of the agreement, which has been approved by both companies’ boards of directors, Chicken Soup for the Soul Entertainment will issue approximately 4.6 million shares of its Class A common stock to Redbox stockholders, who will receive a fixed exchange ratio of 0.087 of a share of Chicken Soup per Redbox share.
Upon closing of the transaction, Chicken Soup for the Soul Entertainment stockholders will own approximately 76.5% of the combined company and Redbox stockholders will own approximately 23.5% on a fully diluted basis. Redbox’s majority owner, Apollo Global Management, will own approximately 15%.
The transaction is expected to close in the second half of 2022, subject to regulatory approval and other customary closing conditions. The combined company will retain the name Chicken Soup for the Soul Entertainment and will continue to trade under the ticker symbol “CSSE” on the Nasdaq.
The deal will provide the combined company with increased scale across content production and distribution.
Redbox, which went public through a $693 million SPAC merger with Seaport Global Acquisition Corp. last year, has 40 million customers in its loyalty program. For $2 or less per night, consumers can access the newest theatrical releases through more than 38,000 automated rental kiosks nationwide. In addition to its ad-supported and paid movies from Hollywood studios and hundreds of content partners, Redbox carries over 130 channels of free ad-supported streaming television.
In 2021, Redbox reported a net loss of $140.8 million, $289 million in net revenue and negative cash flow of $15 million. In March, Redbox laid off 150 employees due to “ongoing adverse effects” from the COVID-19 pandemic.
During the first quarter of 2022, Chicken Soup for the Soul Entertainment posted a net loss of $14.1 million, compared with a loss of $9.2 million a year ago, and net revenue of $29.2 million, up 26% from $23.2 million a year ago.
Crackle Plus, which includes Crackle, Chicken Soup for the Soul and PopcornFlix, offers approximately 14,500 movies and 24,000 television episodes to more than 40 million monthly active users. The AVOD service is available at more than 70 consumer touchpoints across devices, platforms and smart TVs and is on track for a total of 90 touchpoints by the end of 2022.
Chicken Soup for the Soul Entertainment expects that the combined company will exit 2022 with a run rate exceeding $500 million in revenue and adjusted EBITDA in the range of $100 million to $150 million. It also expects to deliver annual run rate cost synergies in excess of $40 million in 2023.
In addition, the company expects Redbox’s legacy DVD business to grow in the next 12 to 24 months as first-run films return to theaters. Movies released at Redbox are typically available 80 to 120 days prior to their release on Netflix.
The move comes as Netflix and Disney have announced plans to introduce cheaper, ad-supported streaming tiers to help bolster subscriber growth. Netflix, which has nearly 222 million paying households worldwide, recently reported its first subscriber loss in over a decade. Disney, which last reported a total of 129.8 million subscribers worldwide, will release its updated subscriber figures in its second-quarter earnings report on Wednesday.
According to a study by IAB, ad spending on connected TV platforms increased 57% from 2020 to 2021 and is expected to increase another 39% this year. Fox Business