As AMC Entertainment winds down an ill-fated plan to raise fresh capital and bolster its pandemic-battered coffers, the multiplex chain’s stock price, once bolstered by bored day traders, has fallen below $2.
That’s down 62.5% in under two weeks, following a judge’s approval of a revised shareholder settlement which in turn allowed the company to begin converting AMC Preferred Equity, or APE, stock units to regular shares. The issuance of APE units and the undoing of that plan have seemed equally unpopular with investors.
Eliminating the APE in theory should allow the theater chain to raise money, at the cost of diluting existing AMC shareholders. At the close of trading Wednesday, shares had fallen to $1.95. AMC plans to complete a 1:10 reverse split Thursday, which would effectively boost its per-share price.
A shaky pandemic recovery
The global COVID pandemic inflicted massive losses on AMC as governments ordered theaters closed. Even when vaccines began rolling out in early 2021, studios continued to hold back on prime theatrical releases or put them on streaming services in lieu of or along with concurrent theatrical exhibition.
That was both due to COVID-related concerns and Wall Street pressure to juice streaming content and subscription figures. It’s taken a while for Hollywood to reverse course: 2023 has truly been the first year with a theatrical slate approximating pre-COVID levels in volume.
AMC lucked out in early 2021 when the company became a meme stock, with shares peaking above $70.
The APE units were an attempt to capitalize on the internet craze. But after the company issued them in August 2022, shareholders sued, which essentially froze the company’s efforts to raise capital.
A judge rejected the initial settlement on July 21 but approved a revised settlement on Aug. 11, and the stock has been in free fall ever since. That’s largely because the unwinding of the APE plan meant dilution for existing shareholders, eroding the value of their stakes. And that’s before the company issues even more new shares to raise much-needed cash.
Is bankruptcy in the cards?
“Barbie” and “Oppenheimer” gave AMC its biggest revenue month ever in July. But investors, looking forward, see an industry in the grips of a massive labor stoppage and question AMC’s long-term health if the strikes cause gaps in the release calendar like the industry saw in 2021 and 2022.
AMC CEO Adam Aron has been vocal about making liquidity the top priority.
“The dumbest thing we could ever do as a company is run out of cash,” said Aron during the company’s most recent earnings call.
The problem is that what’s good for the company — raising more cash — may not be great for investors. But dilution is preferable to bankruptcy, where shareholders might get wiped out altogether.
Ross Gerber, CEO of Gerber Kawasaki Asset Management, doubts the company will truly go belly-up anytime soon.
“AMC is one of the better brands in the movie business,” he said. “$5 billion in debt would be peanuts for an Amazon or an Apple,” he continued, noting that a recent shift in the legal landscape around theater ownership with the expiration of the Paramount Decrees meant that a studio could just buy the theater chain.
While that notion seemed less likely when COVID put the fate of the industry in peril, a recovering theatrical marketplace makes owning a theater chain more enticing.
Gerber also noted the sheer number of businesses, both within the industry and in terms of neighboring economic activity, that depend on a vibrant mutiplex industry. It’s still the center of activity at many a shopping mall, and studios increasingly eye theatrical revenue as a much-needed component of their businesses’ overall profitability.
Like any good ongoing cinematic saga, this one is to be continued. Will AMC raise enough money to stave off a stock collapse and wait out the full revival of the box office? Will the movie business ever get back to pre-pandemic levels? It would be a gripping script to pen if the Writers Guild weren’t on strike.
AMC Theaters declined TheWrap’s request for comment.
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