The AMC 25 Theaters 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 its CEO have done little to assuage AMC Entertainment shareholders’ growing concerns, as the movie theater chain’s stock hit a fresh 52-week low 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 devised several plans to raise more capital to pay down its debt, and invest in acquisitions and theater upgrades.
While the company was able to come back from the brink of bankruptcy in 2021, thanks to millions of retail investors who turned its shares into a meme stock, it has struggled to maintain momentum in 2022.
Concerns about AMC’s massive debt load, which it had amassed prior to the pandemic, have resurfaced as the company dilutes its stock and contends with a slow-to-recover film industry. Additions to the company, including a popcorn business and even a gold mine, have failed to move the needle as the stock price continues to plummet.
For several quarters, AMC’s revenue has not been enough to outweigh its costs. Much of that is because of a slim slate of Hollywood films, the result of production delays brought on by the pandemic, and lower ticket sales.
There is little doubt that the domestic and global box office will recover more strongly in 2023, as more films are released to the public. However, moviegoing may not return to prepandemic levels until 2024 or 2025, if at all, analysts warn.
Where AMC’s trouble lies is in its fundamentals, says Eric Handler, MKM Partners media and entertainment analyst.
He noted that the recent APE stock issuance and previous 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 these things are low risk and additive to the business.”
But, he added, things aren’t as nice when you look at AMC’s capital structure – its large number of shares outstanding, combined with its high debt levels.
“There’s just not a lot of equity value in the shares. And it’s still trading at a substantially higher valuation than where theater operators traditionally trade,” he said. “At some point 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 debt holders, to raise $110 million via a sale of 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 would reduce AMC’s annual interest expense by about $10 million.
“Clearly, the existence of APEs has been achieving exactly their intended purposes,” CEO Adam Aron said in a statement last week. “They have let AMC raise much welcomed cash, reduce debt and in so doing deleverage our balance sheet and allow us to explore possible M&A activity.”
“However, given the consistent trading discount that we are routinely seeing in the price of APE units compared to AMC common shares, we believe it is in the best interests of our shareholders for us 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 it intends to hold a special meeting for shareholders to vote on the proposal, which includes seeking permission to enact a reverse stock split of AMC common shares.
AMC declined to comment further when contacted by CNBC.
“The steps that they’re taking right now, in terms of converting APE to AMC, if that’s passed, and then doing the reverse stock split, if that’s passed, that gets them pretty much back to where they were in 2019,” said Alicia Reese, an analyst at Wedbush.
Essentially, AMC wants to provide its shareholders one share for every 10 shares they own, converting the individual stock value from just under two $4 to just under $40.
This new valuation does not make much sense to several analysts, who note that AMC may have more cash in hand than it did in 2019, but it still has a similar debt load and no dividends.
“It doesn’t work,” said Reese. “All it’s saying right now is that the shares are still overvalued by quite a lot. And they still have quite a bit to drop.”