AMC Entertainment Holdings Inc (NYSE:AMC) stock is down 60% over the past year, but its relevance isn’t gone yet. During the Golden Age of Hollywood, the studio bosses answered to the movie theater chains that controlled their distribution. Theaters aren’t nearly as important today, but they often set the bar for what a product is worth when it is sold for streaming or cable.
That’s why China’s Dalian Wanda Group Co., Ltd. bought control of AMC stock for $2.6 billion in 2012. By buying Carmike Cinemas and Odeon & UCI — each for $1.2 billion more — AMC became the world’s largest movie theater chain in the world.
That investment, however, has not gone well. And Dalian Wanda, which once promised to take over the entertainment business, is now walking back those ambitions.
Could AMC be sold again?
What’s Wanda to Do?
Chinese government directives are calling for a pullback in overseas investment. In response, Dalian Wanda sold its theme parks and hotels in July and said last month it will focus future investment on domestic shopping malls.
There is financial pressure as well. Fitch recently downgraded Dalian Wanda to “junk” status, saying Dalian’s offshore liquidity is poor and it would have a hard time paying notes if they are called.
Meanwhile, their AMC stock investment is not doing well. AMC lost money during the September quarter. And although analysts are expecting a big Christmas when the company reports on Feb. 5 — profits of 36 cents per share, about $19 million, on revenue of $1.45 billion — AMC still expects a loss for the year.
Dalian Wanda is also facing legal pressure at AMC, in the form of a class action suit from holders who claim they were misled about the European purchases. AMC also reportedly failed to disclose that Carmike was losing market share at the time of its acquisition.
Selling AMC Theaters
If Dalian were to decide to sell AMC, there should be buyers. And a quick sale would mean a quick profit for investors who buy AMC shares today.
After all, Regal Entertainment Group (NYSE:RGC) found a buyer in Cineworld, which is taking it out at a 43% premium.
AMC stock, with a market cap of just $1.76 billion, has also had lots of recent action for traders to enjoy. It topped $15 per share twice recently, but by Jan. 18 had fallen back to around $13.65 per share.
So who might buy AMC? Netflix Inc. (NASDAQ:NFLX).
To me, Netflix would acquire AMC for the same reasons Apple Inc. (NASDAQ:AAPL) bought headphone-maker Beats for $3 billion in 2014. Apple’s buyout brought music producer Jimmy Iovine and rapper Dr. Dre to its executive roster, allowing it to launch Apple Music in 2015, which has become another way to fill its cloud data centers with traffic.
Buying AMC would give Netflix what it’s been seeking all along — prestige among the cinephile community and, most importantly, a true theatrical experience to better market the blockbuster movies it is increasingly churning out.
It would be a nice profit for current AMC stock holders and a solid way for Dalian Wanda to back out of what looks now to have been a bad bet.
It’s a plot worthy of the movies. But if Netflix were to buy AMC it would effectively have thwarted the recurring problem of theaters blocking its movies from their silver screens, then Reed Hastings & Co. would both own the distribution and control the content.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing, he owned no shares in companies mentioned in this story.