RLJ Entertainment Inc's RLJE announced Monday it has struck a streaming partnership with AMC Networks Inc AMCX, which allows for the latter investing $65 million in loans in the former. As part of the agreement, AMC will receive warrants, which if exercised, will give it a 50.1 percent stake in RLJ.
RLJ's preference for AMC stems from the fact that both companies fit best, both culturally and going by the complementary nature of the businesses.
"It fits well with where we want to go with our future as far as growing our subscription base and where they want to go in the future in terms of how they can further expand their reach into the digital channels. So their vision and our vision align pretty well," RLJ CFO Nazir Rostom told Benzinga in an exclusive interview.
RLJ, which owns Acorn TV, has seen its subscriber base swell by 92 percent in 2016. Rostom suggested that RLJ is in the pursuit of scaling its content further for it be competitive in the market. RLJ sees AMC as the ideal foil for furthering its growth ambitions.
Majority Stake Sale – A Shackle?
When questioned if the 51 percent stake it ceded to AMC would limit its flexibility, Rostom said he foresees operational flexibility, allowing leeway for it to expand its existing relationship with its partners supporting its content base.
"With AMC down the road and with their ability to get content in a very economic fashion, and for us to show that type of growth, I think this partnership is going to result in something bigger than we ever planned," the CFO told Benzinga.
Will Investors See Logic?
With RLJ stock giving back much of the near 100 percent gain notched up in the aftermath of the speculation of a tie-up in August, the company has a tall order of re-assuring investors the viability of the deal. RLJ sees the deal as an opportunity to enhance its digital channels, helping it to transform into a company with a more predictable revenues, EBITDA, cash flow.
"We are building something today with AMC so that we can get to that predictable future so that investors can see what our value should be," Rostom said.
The cash from operations could be effectively invested into the business to grow operations, Rostom added. The company seeks to invest in content, initiatives and marketing. The CFO also suggested recent growth limited by cash flow constraints and dwelled on what could have been achieved with greater free cash flow.
RLJ Entertainment shares ended down 10.53 percent at $2.04 on above average volumes, giving back some of the 14 percent gain they notched up on Monday.
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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