The AMC 25 Theaters in Times Square in New York is seen on Tuesday, July 8, 2014.
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Branded credit cards and its CEO’s pay freeze did little to appease AMC Entertainment Shareholder concerns grew as shares of the cinema chain hit a new 52-week low on Wednesday.
AMC shares have fallen more than 85% so far this year, closing at $3.84 per share on Wednesday. The drop in inventory comes as the company has drawn up several plans to raise more capital to repay debtand invest in theater acquisitions and upgrades.
While the company was able to recover from the brink of bankruptcy in 2021, thanks to millions of retail investors turning its stock into meme stocks, it struggled to maintain momentum in 2022.
Concerns about AMC’s massive debt load, which it had aggravated before the pandemic, have resurfaced as the company dilute its stock and faces a slow-to-recover movie industry. Additions to the business including a popcorn business and even a gold minefailed to move the needle as the stock price continues to fall.
For several quarters, AMC’s revenues have not been enough to offset its costs. That’s largely due to a thin slate of Hollywood films, the result of pandemic-induced production delays, and declining ticket sales.
There is no doubt that the domestic and global box office will recover more strongly in 2023 as more films are released to the public. However, cinema may not return to pre-pandemic levels until 2024 or 2025, if at all, analysts warn.
AMC’s problems lie in its fundamentals, says Eric Handler, media and entertainment analyst at MKM Partners.
He noted that the recent APE stock issuance and previous stock sales had allowed AMC to pay off some of its more than $5 billion debt, but that the company’s overall valuation had not changed. .
“It’s a negligible impact on valuation,” Handler said. “The credit card is a nice little thing. The popcorn offer is a nice little thing. All of those things are low risk and add to the business.”
But, he added, things don’t look so good when you look at AMC’s capital structure — its large number of shares outstanding, combined with its high level of debt.
“There just isn’t a lot of net worth in stocks. And they’re still trading at a significantly higher value than where theater operators traditionally trade,” he said. “At some point, the fundamentals matter.”
AMC did not immediately respond to a request for comment.
AMC’s latest effort to right the ship is an equity deal with Antara Capital, one of the company’s major creditors, to raise $110 million through the sale of its APE units to Antara for 66 cents apiece. Antara will also exchange $100 million worth of AMC tickets for 91 million APE units, which would reduce AMC’s annual interest expense by approximately $10 million.
“Clearly, the existence of the EPAs has achieved exactly their objectives,” CEO Adam Aron said in a statement last week. “They have allowed AMC to raise some much-welcomed cash, reduce debt, and in doing so, deleverage our balance sheet and allow us to explore potential M&A activity.”
However, given the consistent trading discount we regularly see in the price of APE units relative to AMC common stock, we believe it is in the best interests of our shareholders to simplify our capital structure, eliminating thus the discount that has been applied to the APE units of the market,” he added.
The company’s board announced last week that it intended to hold a special meeting for shareholders to vote on the proposal, which includes the request for approval to adopt a reverse stock split. ordinary from AMC.
AMC declined to comment further when contacted by CNBC.
“The steps they’re taking right now, in terms of converting APE to AMC, if that passes, and then doing the reverse stock split, if that passes, that pretty much brings them back to where they were. in 2019,” said Wedbush analyst Alicia Reese.
Essentially, AMC wants to provide its shareholders with one share for every 10 shares they own, converting the individual share value from just under $4 to just under $40.
This new valuation doesn’t make much sense to several analysts, who note that AMC may have more cash than in 2019, but it still has similar leverage and no dividends.
“It doesn’t work,” Reese said. “All he’s saying right now is that stocks are still grossly overvalued. And they still have a lot to lose.”
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