AMC Entertainment, one of the largest cinema chains in the US, is fighting to avoid bankruptcy as it continues to face financial challenges amid the ongoing pandemic. While millions of Americans are eagerly looking forward to the release of two highly anticipated films, “Barbie” and “Oppenheimer,” the fate of AMC hangs in the balance.
AMC has become a meme stock during the pandemic, with its CEO, Adam Aron, actively engaging with retail investors and selling $2 billion of stock to the Robinhood crowd. However, the company’s efforts to raise capital and finance its operating deficits have become increasingly complex and convoluted, leading to shareholder rebellion.
Last summer, AMC hit a roadblock when it exhausted its authority to issue new common stock. Shareholders were reluctant to give the company permission to sell more shares. In response, Aron introduced a preferred stock called a “PEE,” nodding to the meme stock investors’ terminology. The plan was for the APEs to eventually trade for common stock, but a gap in trading prices emerged, and AMC failed to convince shareholders to allow the issuance of more common stock.
To overcome this obstacle, AMC entered into a complex exchange with a hedge fund, exchanging tens of millions of dollars for help in winning the critical vote to issue more stock. However, this move was seen as a double-cross by retail shareholders, and the company ended up settling with them for $129 million.
Despite these financial engineering efforts, AMC continues to face significant challenges. The company burns through more than $100 million in cash every quarter and carries a staggering $10 billion in leases and debt. Its shares have dropped from $20 last summer to under $5, and the annual U.S. box receipts, which were $11 billion before the pandemic, are only expected to reach $9 billion this year.
Adding to AMC’s woes is the disruption caused by ongoing labor disputes in Hollywood. The Hollywood Writers Guild of America and the Screen Actors Guild/American Federation of Television and Radio Artists have raised concerns about being marginalized and exploited by the current economic model. A prolonged work stoppage could not only delay approved films but also have a lasting impact on the production and distribution of movies.
In the face of these challenges, AMC is welcoming movie buffs this weekend as they anxiously wonder about the future of the company. The release of “Barbie” and “Oppenheimer” may provide a temporary boost, but the long-term prospects remain uncertain. The risk of blockbusters not being as popular as expected, combined with the shift towards streaming distribution, could contribute to a cycle of decline.
In conclusion, AMC Entertainment is battling to stay afloat as it grapples with financial difficulties and labor disputes in the midst of the pandemic. The release of two highly anticipated films may provide some relief, but the company’s long-term sustainability is still in question. As the cinema industry continues to evolve, it remains to be seen how AMC will navigate these challenges and whether it will ultimately be able to revive its business.
Summary:
AMC Entertainment is fighting to avoid bankruptcy as it faces financial challenges. The company has become a meme stock, but shareholder rebellion and a complex exchange have caused dissatisfaction. AMC has a high cash burn rate and carries a significant amount of debt. Ongoing labor disputes could further disrupt the company’s operations. The release of two upcoming films may provide temporary relief, but AMC’s long-term prospects are uncertain.
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Dear reader,
Millions of Americans are looking forward to this Friday, when two great films, Barbie AND Oppenheimer, make their highly anticipated big screen debut.
Some moviegoers are even planning the “Barbenheimer” double feature to watch both Greta Gerwig’s easygoing take on the California doll and Christopher Nolan’s intense biopic about the father of the atomic bomb in succession. A debate ensued over the appropriate order in which to consume the pair, along with accompanying social media memes.
Between the two releases, another cliffhanger remains. US cinema chain AMC Entertainment is fighting hard to avoid bankruptcy, a fate that has brought down rivals including Cineworld. AMC has become a meme stock during the pandemic. Over time, he was able to sell $2 billion of stock to the Robinhood crowd, with the chain’s CEO Adam Aron leaning into the ringmaster role.
But consider two new twists. Some shareholders have rebelled against AMC’s increasingly convoluted efforts to continue selling the capital it needs to raise cash and finance continuing operating deficits. Meanwhile, a major job disruption among Hollywood talent could derail the 2024 and 2025 movie productions that would bring the masses back to theaters.
Last summer, AMC had its own special effects thriller. The company has exhausted its authority to issue new common stock. Existing shareholders would not give the company permission to sell more shares.
Aron then conjured up a preferred stock that resembled common stock, calling the security a “PEE.” This was a nod to the etiquette that meme stock investors had given themselves. APEs were expected to eventually trade for common stock and, until then, were expected to trade at or near the same price.
But a gap in trading prices emerged, and the company was unable to convince shareholders to allow it to issue more common stock. Eventually AMC found a hedge fund with which it entered into a complex exchange to give tens of millions of dollars in effectively free earnings in exchange for getting help finally winning the critical vote on the ability to issue more stock.
Retail shareholders didn’t like what they perceived as a double-cross from Aron. Ultimately, they secured a $129 million settlement from the company, which is now awaiting expected approval from a Delaware court.
But will all financial engineering matter? Cash burn in the most recent quarter was more than $100 million, and the company has $10 billion in leases and debt, the latter of which is trading at stressed levels. AMC shares are down less than $5 each after trading at $20 last summer.
Annual U.S. box receipts had held steady at $11 billion before the pandemic. This year, Aron says, he should have produced $9 billion. The risk is that blockbusters like the last chapters of Indiana Jones and Mission: Impossible are not as popular as hoped. Studios have released fewer films. Combined with the structural shift to streaming distribution, a cycle of doom could form.
Streaming and its economy also loom large in the twin strikes starring the Hollywood Writers Guild of America and the Screen Actors Guild/American Federation of Television and Radio Artists.
Talent in front of the camera and behind the scenes believe they are marginalized by an inferior economic model and rapacious corporate suits. AMC had hoped that by 2024 and 2025, box office receipts would finally return to nominal 2019 levels. There is reason to think that a prolonged work stoppage could not only delay new films already approved, but radically alter the production and distribution of films.
This weekend, AMC will welcome a bevy of movie buffs as they silently wonder whether its finale will be a fantasy land of the dolls or nuclear annihilation.
Have fun for the rest of the week,
Sujeet Indap
Wall Street Publisher
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