What happened
Shares of Redbox Entertainment (RDBX), probably best known for its DVD-dispensing video kiosks, rose a dramatic 26% in early trading on June 2. The interesting thing here is that the biggest news of late came out on May 11, when the company agreed to be acquired by video streaming and content company Chicken Soup for the Soul Entertainment (CSSE 5.98%). The details of that deal are very important.
So what
Redbox shareholders will receive 0.087 of a share of Chicken Soup for the Soul for every share of Redbox they own. When all is said and done, Chicken Soup for the Soul shareholders will own 76.5% of the combined company and Redbox shareholders will own 23.5%. This deal is almost certain to take place, as well, because stockholders owning roughly 86% of Redbox and holders controlling 91% of the voting rights for Chicken Soup for the Soul are supporting the acquisition.
Image source: Getty Images.
So what exactly is 0.087 of a share of Chicken Soup for the Soul worth today? Around $0.55, given the stock's roughly $6.40 share price. Redbox's shares are trading at around $6.80 per share. Something here doesn't add up, which is likely tied back to investor sentiment. Indeed, it appears that Redbox has become a meme stock. Simply put, despite the highly likely outcome here, a small group of investors are gambling on a much more profitable result.
Now what
All but the most aggressive investors should avoid Redbox at this point. Perhaps the meme stock crowd knows something that everyone else doesn't, but given the terms of the deal with Chicken Soup for the Soul, that seems highly unlikely. Today's price move for Redbox doesn't look rational and neither does its share price.
