AMC 25 Theaters in Times Square in New York showing on Tuesday, July 8, 2014.
Richard Levine | Corbis News | Getty Images
Branded credit cards and a CEO pay freeze have done little to mitigate that AMC Entertainment shareholders’ growing concern, as the movie theater chain’s shares hit a fresh 52-week low on Wednesday.
Shares of AMC have fallen more than 85% so far this year, closing at $3.84 a share on Wednesday. The stock drop comes as the company has drawn up several plans to raise more capital to pay down debt, and invest in acquisitions and theater upgrades.
While the company was able to bounce back from the brink of bankruptcy in 2021, thanks to millions of retail investors turning its stock into a meme stock, it has struggled to maintain momentum in 2022.
Concerns about AMC’s huge debt load, which it had amassed before the pandemic, have resurfaced as the company dilutes its stock and contends with a movie industry in slow decline. Subsidies for the company, including a popcorn business and even a gold mine, have failed to move the needle as the stock price continues to plunge.
For several quarters, AMC’s income has not been enough to offset its costs. Much of that is due to a slim line-up of Hollywood films, the result of production delays caused by the pandemic, and lower ticket sales.
There is little doubt that the domestic and global box office will recover stronger in 2023, as more films are released to the public. However, movie viewing may not return to pre-pandemic levels until 2024 or 2025, if at all, analysts warn.
Where AMC’s problems lie is in its fundamentals, says Eric Handler, MKM Partners’ media and entertainment analyst.
He noted that the recent issuance of APE stock and earlier stock sales allowed AMC to pay down some of its more than $5 billion in debt, but that the company’s overall valuation has not changed.
“It’s a negligible impact on valuation,” Handler said. “The credit card is a nice little thing. The popcorn deal is a nice little thing. All of these things are low risk and additive to the business.”
But, he added, things are not as pleasant when you look at AMC’s capital structure – its large number of shares outstanding, combined with its high level of debt.
“There’s just not a lot of equity value in the stock. And it’s still trading at a significantly higher value than where theater operators traditionally trade,” he said. “At some point it matters fundamentally.”
AMC did not immediately respond to a request for comment.
AMC’s latest attempt to right the ship is an equity deal with Antara Capital, one of the company’s biggest debt holders, to raise $110 million via a sale of the APE units to Antara for 66 cents apiece. Antara will also exchange $100 million of AMC notes for 91 million APE units, which will reduce AMC’s annual interest expense by about $10 million.
“It is clear that the existence of APEs has achieved exactly their intended purpose,” CEO Adam Aron said in a statement last week. “They have allowed AMC to bring in much welcome cash, reduce debt and thereby reduce our balance sheet and allow us to explore possible M&A activity.”
“However, given the consistent trading discount that we routinely see in the price of APE units compared to AMC’s common stock, we believe it is in our shareholders’ best interests to simplify our capital structure, thereby eliminating the discount that has been applied to the APE units in the market,” he added.
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 adopt a reverse stock split of AMC shares.
AMC declined to comment further when contacted by CNBC.
“The steps they’re taking right now, in terms of converting APE to AMC, if passed, and then doing the reverse stock split, if passed, that pretty much brings them back to where they were in 2019,” said Alicia Reese, analyst at Wedbush.
Essentially, AMC wants to give its shareholders 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 on hand than it did in 2019, but it still has a similar debt load and no dividend.
“It’s not working,” Reese said. “All that says right now is that stocks are still overvalued by quite a bit. And they still have some way to go.”