The board of RLJ Entertainment Inc. (NASDAQ: RLJE) has agreed to surrender the controlling stake in the company to AMC Networks in exchange for a $65 million investment. However, AMC’s taking of RLJE will be a gradual process spanning about seven years.
Term loans to RLJE
The $65 million being given to RLJ Entertainment Inc. (NASDAQ: RLJE) is in the form of term loans. Under the agreement, AMC will give RLJE $5 million as one-year term loan. Then $60 million will be given to RLJE as a seven-year term loan.
Warrants to purchase shares
Under the deal, AMC has been granted warrants to purchase shares of RLJE. As such, AMC will take at least 20 million shares in RLJE, which should give it a controlling stake in the company.
The first warrant gives AMC rights to purchase 5 million shares of RLJE. The second warrant gives the company the rights to purchase 10 million shares in RLJE, while the third warrants is for the purchase of another 5 million shares.
RLJE said that the warrants will be exercised at the price of $3 per share.
It is worth pointing out that because the idea is to given AMC room to own at least 50.1% of the equity stake in RLJE, the third warrant can be amended to ensure that the threshold is met.
Another thing to note is that RLJE will pay interest on the loans in the form of both cash and stock. However, the rate of interest wasn’t immediately clear.
Board position – RLJ Entertainment Inc. (NASDAQ: RLJE)
By agreeing to give $65 million in term loans to RLJ Entertainment Inc. (NASDAQ: RLJE), AMC has been granted the rights to designate two people to sit on the board of RLJE. However, once it takes a controlling stake in RLJE, AMC will have the right to have majority representation on the board of RLJE.
Currently, the board of RLJE has seven members and those include CEO Miguel Penella and chairman Robert Johnson.
Competing buyout proposals
The agreement that RLJ Entertainment Inc. (NASDAQ: RLJE) has entered into with AMC bars it from seeking competing acquisition proposals. However, the company can consider unsolicited buyout offers with the first 10 days of closing the investment agreement.