JAKKS Pacific Announces Redemption of All Shares of Preferred Stock

Rhea-AI Summary

JAKKS Pacific, Inc. announces redemption of Series A Senior Preferred Shares for $20 million cash and 571,295 Common Shares valued at $15 million. The redemption marks a significant step towards financial strength and debt reduction.

Positive

• Redemption of Series A Senior Preferred Shares for $20 million cash and 571,295 Common Shares worth $15 million.
• Elimination of last debt-related security from the 2019 restructuring, reducing preferred dividends by $1.6 million over 12 months.
• Removal of Preferred Stock Derivative Liability ($29.947 million) and Preferred Stock Accrued Dividends ($5.992 million) from the Balance Sheet post-transaction.
• Funding the cash component of the transaction with cash on hand.
• Dilution of outstanding common shares by 5.6% post-transaction.

Negative

• None.

Financial Analyst

The redemption of the Series A Senior Preferred Stock by JAKKS Pacific, Inc. is a strategic financial maneuver that directly influences the company's capital structure and liquidity position. By allocating $20 million in cash and issuing 571,295 common shares, the company is effectively reducing its debt obligations and future dividend payments, which could enhance its financial flexibility. The transaction's structure, part cash and part equity, suggests a balanced approach to managing the company's cash reserves while also addressing shareholder dilution concerns.

The discount on the contractual liquidation premium, amounting to $4.6 million and the elimination of $1.6 million in preferred dividends, may be seen as a cost-saving initiative, potentially improving the company's net income over the next fiscal year. However, the 5.6% dilution in outstanding common shares could have a mixed impact on the stock market, potentially affecting the earnings per share (EPS) metric. Investors should closely monitor the company's subsequent earnings reports to assess the real impact of the dilution on profitability and EPS.

Market Research Analyst

The removal of the last debt-related security from JAKKS Pacific's balance sheet, a remnant of the 2019 restructuring, signals a shift towards a stronger equity base and may be perceived favorably by the market. The company's emphasis on self-sustainability and future positioning indicates a proactive strategy to leverage its improved stock position and cash flow for growth.

While the industry has faced volatility, particularly due to the COVID pandemic, JAKKS Pacific's ability to navigate these challenges and emerge in a position to redeem its preferred shares is noteworthy. The planned focus on maximizing 2024 opportunities and developing the 2025 product lines could be indicative of the company's confidence in its market prospects and innovation pipeline. Stakeholders should consider the potential for new product launches and market expansions as catalysts for revenue growth.

Corporate Finance Expert

The decision by JAKKS Pacific to redeem its Series A Senior Preferred Stock is a significant move in corporate finance, as it directly affects the company's weighted average cost of capital (WACC). By eliminating the Preferred Stock Derivative Liability and Preferred Stock Accrued Dividends from its balance sheet, the company is reducing its cost of capital, which could improve return on investment for shareholders in the long term.

Furthermore, the funding of the cash component with cash on hand demonstrates JAKKS Pacific's liquidity and could reassure investors of the company's ability to meet short-term obligations without incurring additional debt. The post-transaction equity structure, with 10,798,353 outstanding common shares, will require a close analysis of the company's valuation metrics, as the increased share count may affect market perception and stock price volatility.

Redemption Price for all Series A Senior Preferred Shares is $20 million cash and 571,295 Common Shares with a value of $15 million

SANTA MONICA, Calif., March 12, 2024 (GLOBE NEWSWIRE) -- JAKKS Pacific, Inc. (NASDAQ: JAKK) today announced that the Company has agreed to redeem all of its shares of Series A Senior Preferred Stock for an aggregate price of $20,000,000 cash and 571,295 of its common shares, representing a value of $15,000,000.

Management Commentary
“This represents another significant milestone in achieving our goal of building a financially strong company, self-sustaining from its cash flows and well positioned for the future," said Stephen Berman, JAKKS Pacific Inc.’s Chairman and CEO. "Despite significant industry volatility triggered by the COVID pandemic, we have maintained a singular focus to reenergize our business and improve our profitability. The success of our strategy gave us the ability to use our cash flow and strengthened stock position to conclude this transaction. We now refocus our energies on maximizing our 2024 opportunities and building out our 2025 product lines."

The negotiated redemption removes the last debt-related security issued as part of the company’s 2019 restructuring. The price represents a discount of $4.6 million to the contractual liquidation premium and will eliminate $1.6 million in preferred dividends over the next 12 months. Post transaction, the company will have eliminated the Preferred Stock Derivative Liability ($29.947 million as of 12/31) and Preferred Stock Accrued Dividends ($5.992 million as of 12/31) from its Balance Sheet. The cash component of the transaction was funded with cash on hand. Post-transaction the company will have 10,798,353 outstanding common shares, a dilution of 5.6%.

About JAKKS Pacific, Inc.
JAKKS Pacific, Inc. is a leading designer, manufacturer and marketer of toys and consumer products sold throughout the world, with its headquarters in Santa Monica, California. JAKKS Pacific’s popular proprietary brands include: AirTitans®, Ami Amis™, Disguise®, Fly Wheels®, JAKKS Wild Games™, Moose Mountain®, Maui®, Perfectly Cute®, ReDo® Skateboard Co., Sky Ball®, SportsZone™, Xtreme Power Dozer®, and WeeeDo®, as well as a wide range of entertainment-inspired products featuring premier licensed properties. Through our products and our charitable donations, JAKKS is helping to make a positive impact on the lives of children. Visit us at www.jakks.com and follow us on Instagram (@jakkspacific.toys), Twitter (@jakkstoys) and Facebook (@jakkspacific.toys).

Forward Looking Statements
This press release may contain “forward-looking statements” (within the meaning of the Private Securities Litigation Reform Act of 1995) that are based on current expectations, estimates and projections about JAKKS Pacific's business based partly on assumptions made by its management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such statements due to numerous factors, including, but not limited to, those described above, changes in demand for JAKKS Pacific's products, product mix, the timing of customer orders and deliveries, the impact of competitive products and pricing, or that the Recapitalization transaction or any future transactions will result in future growth or success of JAKKS. The “forward-looking statements” contained herein speak only as of the date on which they are made, and JAKKS undertakes no obligation to update any of them to reflect events or circumstances after the date of this release.

CONTACT:
JAKKS Pacific Investor Relations
(424) 268-9567
Lucas Natalini
investors@jakks.net

What is the redemption price for all Series A Senior Preferred Shares announced by JAKKS Pacific, Inc.?

The redemption price includes $20 million in cash and 571,295 Common Shares valued at $15 million.

Who commented on the redemption of Series A Senior Preferred Shares by JAKKS Pacific, Inc.?

Stephen Berman, the Chairman and CEO of JAKKS Pacific Inc., provided management commentary.

How will the redemption impact JAKKS Pacific, Inc.'s financials?

The redemption will eliminate $1.6 million in preferred dividends over the next 12 months and remove Preferred Stock Derivative Liability and Preferred Stock Accrued Dividends from the Balance Sheet.

How was the cash component of the redemption transaction funded?

The cash component of the transaction was funded with cash on hand.

What will be the dilution of outstanding common shares for JAKKS Pacific, Inc. post-transaction?

Post-transaction, JAKKS Pacific, Inc. will have 10,798,353 outstanding common shares, representing a dilution of 5.6%.