AMC Theaters 25 premieres in New York’s Times Square on Tuesday, July 8, 2014.
Richard Levine | Corbis News | Getty Images
Branded credit cards and a pay freeze for its CEO did little to appease AMC Entertainment Shareholder concerns mounting, as the movie theater chain’s stock hit a 52-week low on Wednesday.
Shares of AMC are down more than 85% so far this year, closing at $3.84 a share on Wednesday. The stock drop comes as the company has devised several plans to raise capital to pay down its debt and invest in acquisitions and stage upgrades.
While the company was able to bounce back from the brink of bankruptcy in 2021, thanks to the millions of retail investors who converted its shares into M shares, it has struggled to maintain momentum in 2022.
Concerns about AMC’s massive debt load, which it accumulated before the pandemic, have resurfaced as the company has deleveraged its stock and grappled with a slow-recovery movie industry. Additions to the company, including a popcorn business and even a gold mine, have failed to move the needle as the share price continues to drop.
For several quarters, AMC’s revenues weren’t enough to outweigh its costs. Much of that is due to a slim slate of Hollywood films, the result of production delays caused by the pandemic, and low 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. Still, film offenders may not return to pre-pandemic levels until 2024 or 2025, if that’s the case, analysts warn.
The problem with AMC is its fundamentals, says Eric Handler, MKM Partners media and entertainment analyst.
He noted that the recent APE stock issue and previous stock sales have allowed AMC to pay off some of its more than $5 billion in debt, but the company’s overall valuation remains unchanged.
“It’s a minimal impact on valuation,” Handler said. “A credit card is a nice little thing. The popcorn deal is a sweet thing. All of these things are low risk and add up to the business.”
But, he added, things aren’t quite right when you look at AMC’s capital structure — the large number of shares outstanding, combined with its high debt levels.
“There’s not a lot of equity in the stock. It’s still trading at a much higher valuation than where theater operators traditionally trade,” he said. “The basics matter at some point.”
AMC did not immediately respond to a request for comment.
AMC’s latest effort to right the ship is a stock deal with Antara Capital, one of the company’s major debt holders, to raise $110 million by selling its APE units to Antara for 66 cents a piece. Antara will also exchange $100 million of AMC notes for 91 million APE units, which will reduce AMC’s annual interest expense by approximately $10 million.
“It is clear that the existence of APEs has served exactly the purposes for which they were intended,” CEO Adam Aron said in a statement last week. “They’ve allowed AMC to raise much welcome cash, reduce debt and in doing so reduce our balance sheet and allow us to explore potential merger and acquisition activity.”
“However, given the consistent commercial discounting that we routinely see in the price of APE units compared to AMC common stock, we believe it is in the best interest of our shareholders to streamline our capital structure, thereby eliminating the discounting that has been applied to APE units in the marketplace.”
The company’s board announced last week that it intends to hold a special meeting of shareholders to vote on the proposal, which includes seeking permission to enact a reverse stock split for AMC’s common stock.
AMC declined to comment further when contacted by CNBC.
“The steps they’re taking now, in terms of converting APE to AMC, if that passes, then doing a reverse stock split, if that passes, that pretty much puts them back where they were in 2019,” Alicia Reese, analyst at Wedbush.
Essentially, AMC wants to provide its shareholders with 1 share for every 10 shares they own, turning the value of individual shares from less than $4 to just under $40.
This new valuation doesn’t make much sense to many analysts, who note that AMC may have more cash on hand than it did in 2019, but it still has a similar debt load and no dividend.
“It doesn’t work,” Reese said. “All he’s saying now is that stocks are still very, very overvalued. They still have a little bit to go down.”
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