By Wolf Richter for WOLF STREET.
Feel-good-video producer and distributor Chicken Soup for the Soul Entertainment has finally filed for bankruptcy. It was inducted into our pantheon of Imploded Stocks in March 2022 as its shares had collapsed by over 70%.
It’s one of our favorites in the pantheon because it went public via a crowdfunded “Regulation A+” IPO in 2017, as a spin-off by book publisher Chicken Soup for the Soul Publishing, which is not affected by the bankruptcy filing. Born out of the 2012 JOBS Act, Regulation A+ allows small outfits to raise up to $50 million directly from small investors in a 12-month period without having to jump through the hoops and disclosure requirements of a regular IPO.
So Chicken Soup for the Soul Entertainment has lost money in every year of its publicly traded existence, including $636 million in 2023, according to its Annual Report.
It became infamous in our pantheon with its acquisition of DVD-rental-fossil Redbox, which was a 2-step process: Step 1, it bought a 75.6% stake of Redbox from PE firm Apollo Global Management, which had spun off the other portion of Redbox via merger with a SPAC in October 2021. Those post-SPAC Redbox shares first spiked to $27 intraday and then collapsed to about $2.50 a share when, step 2, Chicken Soup for the Soul acquired them in June 2022.
Problem #1 was that the phenomenon we’ve come to call Consensual Hallucination had already run out on Chicken Soup for the Soul.
And problem #2 was that Redbox was a DVD-rental-fossil that came with $325 million in debt. That debt became Chicken Soup for the Soul’s debt. And Apollo washed its hands off it. Don’t buy anything from a PE firm after Consensual Hallucination runs out?
In addition to Redbox, Chicken Soup for the Soul also operates video streaming company Crackle, which it had acquired from Sony in 2019. In 2016, it had acquired a majority stake in A Plus, a website founded by actor and producer Ashton Kutcher. Other acquisitions include Screen Media and 1091 Pictures.
So in June, the company ran out of money and couldn’t make payroll for its 1,000 employees, according to earlier reporting by Deadline.
In the bankruptcy petition with the U.S. Bankruptcy Court for the District of Delaware it listed total debts of $970 million and consolidated assets of $414 million. The creditors listed in the bankruptcy filing include:
Universal Studios Home Entertainment ($16.7 million)
Universal City Studios Productions ($16.7 million)
Sony Pictures Home Entertainment ($9.1 million)
BBC Studios Americas ($9 million)
Walgreens ($5 million)
Lionsgate ($4.6 million)
Walmart ($4.1 million)
Vizio ($2.75 million)
Warner Bros. Home Entertainment ($2 million)
Paramount Pictures ($1.96 million)
Paramount Home Entertainment ($1.2 million).
On June 11, the company disclosed that CEO William J. Rouhana, Jr., who holds 79% of the voting power of the outstanding common stock, had fired “all members of the Company’s board of directors and the board of directors or board of managers of each subsidiary of the Company,” other than himself, citing a Delaware General Corporation Law under which the entire board may be removed by the holders of a majority of the voting power of the shares. Rouhana stepped down on June 24, according to bankruptcy court documents.
This morning, the company said in an email sent to employees that a new guy had been installed as CEO, Bart Schwartz, who was also appointed as member of the board of directors, along with two other new members, according to Deadline.
As part of the bankruptcy filing, the company is seeking a debtor-in-possession loan that would give it enough liquidity to continue operating during the bankruptcy process and make its payroll and pay vendors. If it doesn’t get DIP funding, it will be liquidated.
Funnily, consensual hallucination took a hold of the Chicken Soup for the Soul Entertainment shares [CSSE] in June 2020 (at the time, they were down to about $7) drove them up by 550% in 12 months, to a peak of $46 in June 2021, and then they kathoomphed as all this stuff did all over the place – giving rise to our pantheon of Imploded Stocks. By March 2022, they were down by over 70%. By August 2023, they were down by 99%. Today, they’re at 11 cents or whatever (data via YCharts):
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