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Merger arbitrage
Redbox (NASDAQ:RDBX) is enjoying a fun summer of goofy meme stock fame alongside GameStop (GME) and AMC (AMC) – utterly detached from fundamental value or the reality of its approaching future. In the days and weeks ahead, its stock price could do absolutely anything. Bankruptcies get goofy meme stocks (REV) and SPACs get goofy meme stocks (DWAC), but merger arb doesn’t get our share of goofy meme stocks, so it’s nice to have one for some entertainment value.
Who?
Redbox operates a network of 38,000 self-service kiosks where consumers, in theory, rent or buy DVDs and, um, Blu-rays. Kids: These are what came before there were streaming videos. It was before you were born.
What?
Redbox is a broken deSPACed equity. It IPOed in November 2020, the deal closed in October 2021, it mooned to the high teen per share then collapsed to under $2 per share. So, in short, a SPAC. In May 2022, the weirdly named Chicken Soup for the Soul (CSSE) took it out of its misery by buying it for 0.087 shares of CSSE for each share of RDBX. For those of you playing at home, that’s worth $0.64 per share today. It already has secured the buyer’s shareholder approval by written consent. The deal needs the target shareholder approval and HSR. A reasonable price for the RDBX shares is somewhere around $0.60. An unreasonable price? Today’s $7.22!
|
Target |
Ticker |
Parity |
Spread |
IRR |
|
Redbox |
(RDBX) |
$0.64 |
-$6.75 |
->100% |
When?
The deal will probably close by September. RDBX shares will be exchanged for CSSE. RDBX warrants (RDBXW) with an $11.50 strike and five-year term will be very close to worthless.
Where?
Redbox is headquartered in Illinois and their kiosks are everywhere, available to anyone without internet access to use Amazon (AMZN), Disney (DIS), Netflix (NFLX), etc.
Why?
Sell RDBX because there is no reason to own them. They’re trading sardines. This is a greater fool game and shares need to find a very foolish fool and quick before they are exchanged for a far lower value of CSSE shares. If you want to own CSSE in September (to each his own)… just buy CSSE shares.
Caveat
While the stock will get crushed by the fall, it could do anything at all between now and then. Things will get serious around the time for the deal to close, but in the meantime, this stock is anything but serious.
Conclusion
RDBX is insolvent. Without CSSE taking it out of its misery, it would need to file for bankruptcy. Shareholders should reasonably anticipate no recovery. With the deal, RDBX holders will get around $0.64 in CSSE shares, but the deal will help drag the value of those shares downwards.
TL; DR
Sell RDBX. And if you want to see a movie, and you’re reading this in 2022 – check out Amazon Prime!
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