AMC Shares Fall Over 16% After Announcement of Stock Dilution
By Movieguide® Contributor
AMC Entertainment shares plunged more than 16% following an announcement that the theater chain plans on selling off up to $250 million worth of stock.
AMC is looking to increase “liquidity in light of the low first quarter box office,” according to Deadline. The chain pointed to last year’s strikes as a reason for the low box office numbers, as well as “increased seasonal working capital requirements, and the resulting cash burn the Company has experienced.”
The theater chain shared its plans for any proceeds from the sale: “to bolster liquidity, to repay, refinance, redeem or repurchase its existing indebtedness (including expenses, accrued interest and premium, if any) and for general corporate purposes.”
“Significant uncertainty remains for AMC due to its high degree of financial leverage,” Barrington Research analyst James Goss explained following the release of AMC’s Q4 numbers. “Management has been successful in raising equity that has improved AMC’s potential to move past the pandemic, but risk levels remain high.”
This isn’t the first time AMC has diluted shares. InvestorPlace reported AMC has diluted its shareholders “several times during the past year in order to reduce its long-term debt of $4.6 billion, $3 billion of which will be due in 2026.”
AMC has been holding off bankruptcy for the last year. CEO Adam Aron wrote an open letter to shareholders explaining that, because of the strikes affecting the movie box office, “the risk materially increases of AMC conceivably running out of cash in 2024 or 2025, or of AMC being unable to satisfactorily refinance and stretch out the maturity of some of our debt.”
Movieguide® previously reported on AMC’s financial issues:
During a Q2 earnings report that saw a massive profit jump, AMC Entertainment CEO Adam Aron warned that the company could be in serious financial peril if it can’t raise new cash before winter.
While AMC currently holds $643 million in liquidity, Aron believes that shareholders—who own the majority of the company’s stock—“are underestimating the potential for cash burn in seasonally weaker winter months, especially given the uncertainties of the actors’ and writers’ strikes, since no one knows when they will end.”
“We continue to seek the flexibility to raise fresh capital on the best possible terms…to avoid the pitfalls that sank others in the industry,” Aron said on a call with investors.
Aron’s warnings about fresh equity began last month after a court ruling made it harder for the company to raise money. The courts ruled that AMC was not allowed to issue more stock without the approval of its retail investors, who are balking at the idea, not wanting to dilute their holding.
“The dumbest thing we could ever do in this industry is run out of cash,” Aron said, especially because he believes the theater industry will see a full recovery by next year. “If we were to run out of cash before we before we get to 2024 or 2025, that would be a disaster.”
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