AMC (NYSE:AMC) stock is in the spotlight following Cineworld’s (OTCMKTS:CNWGY) commencement of Chapter 11 bankruptcy in the U.S. and the U.K. Cineworld has a debt of $5 billion of debt and is in line for a $1 billion judgment due to a failed merger with Cineplex. It is also on the line for a “$1.94 billion debtor-in-possession financing facility from existing lenders.” The movie theater chain is the second largest in the world, trailing behind AMC.
In response to the development, AMC’s CEO Adam Aron tweeted:
Cineworld/Regal just filed for Chapter 11 bankruptcy protection for its theatres in the U.S.and U.K. Fortunately, AMC is in a very, very different situation — because retail investors embraced us and let us raise boatloads of cash. Thank you to retail! You really did save AMC.
— Adam Aron (@CEOAdam) September 7, 2022
Notably, Aron mentioned that AMC retail investors helped save the company from an uncertain fate. Back in March, Aron explained that retail investors own more than 90% of the public float when excluding index fund ownership. Still, shares of AMC stock have fallen by over 50% since Aron made that statement. Much of that loss is due to the special dividend issuance of AMC Preferred Units (NYSE:APE). Aron explained: “the value of your AMC investment will be the combination of your AMC shares and your new APE units.”
AMC Stock in Focus Following Cineworld Chapter 11 Bankruptcy
Aron sought to differentiate AMC from Cineworld, stating that AMC had $1 billion of liquidity on hand at the end of the second quarter. He added that the best thing his company could do for shareholders is to have “ample cash.” The CEO also stated that he owns 793,974 shares each of AMC and APE and that shareholders should not “incorrectly fear dilution.” He owns an additional 2,100,074 shares that will vest between 2023 and 2025.
Approximately 517 million APE units were issued, with the same number of AMC shares outstanding. However, another 4.5 billion shares could be issued, pending board proposition and shareholder approval. That would have the effect of heavily diluting AMC and APE shareholders. It’s possible for the units to be converted into AMC shares, although this is not expected to happen anytime soon.
Meanwhile, AMC received a price target of 50 cents from MKM Partners on Sept. 2. Analyst Eric Handler notes that shares outstanding have increased by 400% since the start of the pandemic. He characterizes the company’s capital structure as “upside-down,” calling into focus AMC’s debt of $5.5 billion. Handler adds that movie theater demand “hit a wall” in August and that demand should remain low until late October. As a result, the analyst lowered his box office industry forecasts for Q3 and Q4.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
