The AMC 25 Theater in Times Square in New York is seen on Tuesday July 8, 2014.
Richard Levine | Corbis News | Getty Images
Branded credit cards and a pay freeze for the CEO did little to calm things down AMC entertainment growing concern from shareholders as the cinema chain’s shares hit a fresh 52-week low on Wednesday.
AMC shares 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 developed multiple plans to raise more capital to pay down its debt and invest in acquisitions and theater upgrades.
While the company came off the brink of bankruptcy in 2021 thanks to millions of retail investors turning its shares into a meme stock, it struggled to maintain momentum in 2022.
Concerns about AMC’s massive debt load, which it amassed before the pandemic, have resurfaced as the company waters down its shares and grapples with a slow-recovering film industry. Additions to the company, including a popcorn shop and even a gold mine, have failed to move the needle as the stock price continues to plummet.
For several quarters, AMC’s revenue hasn’t been enough to outweigh its costs. Much of this is due to a thin slate of Hollywood films due to production delays due to the pandemic and lower ticket sales.
There is little doubt that the domestic and global box office will see a stronger recovery in 2023 as more films are released to the public. But analysts are warning that cinema admissions may not return to pre-pandemic levels before 2024 or 2025, if at all.
AMC’s problem lies in its fundamentals, says Eric Handler, media and entertainment analyst at MKM Partners.
He noted that the recent issuance of APE stock and previous stock sales allowed AMC to repay some of its more than $5 billion in debt, but that the company’s overall valuation hasn’t changed.
“It’s a negligible impact on valuation,” Handler said. “The credit card is a nice little thing. The popcorn deal is a neat little thing. All of these things are low risk and add to the business.”
But, he added, things aren’t so pretty when you look at AMC’s capital structure — the large number of outstanding shares combined with the high level of debt.
“The shares just don’t have much equity value. And they still trade at a much higher valuation than theater operators traditionally trade,” he said. “At some point, it all comes down to the basics.”
AMC did not immediately respond to a request for comment.
AMC’s latest attempt to fix the ship is an equity deal with Antara Capital, one of the company’s principal debtors, to raise $110 million through a sale of its APE units to Antara for 66 cents apiece. Antara will also exchange $100 million of AMC debentures for 91 million APE units, which would reduce AMC’s annual interest expense by approximately $10 million.
“Clearly, the existence of APEs has achieved exactly their intended purpose,” CEO Adam Aron said in a statement last week. “They have enabled AMC to raise very welcome cash, reduce debt thereby deleveraging our balance sheet and give us an opportunity to explore potential M&A activity.”
“However, given the consistent trading discount we routinely see in the price of APE units versus AMC common stock, we believe it is in the best interests of our shareholders to simplify our capital structure and thereby eliminate the existing discount on the APE units have been applied in the market,” he added.
The company’s board of directors announced last week that it intends to hold a special meeting for stockholders to vote on the proposal, which includes seeking authorization to conduct a reverse stock split of AMC common stock.
AMC declined to comment further when contacted by CNBC.
“The steps they are taking right now in terms of converting APE to AMC if that passes and executing the reverse stock split if that passes puts them pretty much back to where they were in 2019,” he said Alicia Reese, analyst at Wedbush.
Essentially, AMC wants to give its shareholders one share for every 10 shares they own, converting the individual stock value from just under $2.4 to just under $40.
That 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 dividends.
“It’s not working,” Reese said. “All we can see right now is that the stock is still pretty overvalued. And she still has a lot to lose.”