AMC Share Sales: A Wise Move for the Company’s Future

March 25, 2020:

COVID is sweeping the globe, causing shutdowns worldwide. One casualty: all 1,000 theaters of 100 year old AMC Entertainment Holdings, Inc. Like many businesses, its ability to remain solvent was in serious doubt.

Under these cirumstances, a lot of CEOs arrange a golden parachute for themselves and a few golf buddies in the C-suite and throw the frontline workers to the wolves. But not AMC CEO Adam Aron.

He furloughed himself and the entire headquarters staff. Never have I heard of a CEO furloughing himself to save his company money, no matter how dire the circumstances. Whatever AMC’s other problems, it was clear to me then that Aron is a true leader with the company’s best interests at heart.

I bet Aron, his executive team, and the employees manning their theaters could’ve never guessed where AMC would be a year later: solvent, reopening, and an unexpected stock market darling. Indeed, AMC stock is up more than 20-fold this year, with retail traders piling in.

Aron took advantage of that soaring share price last week, selling 20 million new shares for over $800 million. Some have critized that move as selling out existing shareholders by diluting their ownership stake, but I think this decision is a shrewd move to put the company on solid long term footing.

AMC lost over $4 billion in 2020 amid COVID shutdowns and ended the year with just $300 million in cash left. The company faced bankruptcy in a matter of months, if not less. But AMC capitalized on its increasing stock price early this year to issue more shares, and ended the first quarter of 2021 sitting on over $800 million.

With last week’s $800 million sale, AMC’s cash hoard likely exceeds $1.5 billion, taking bankruptcy off the table for the forseeable future.

And while the share sales early in the year involved significant dilution, last week’s issuances only increased the share count by about 4%. With such a high share price, AMC simply doesn’t need to sell as many shares to rake in a nice cash pile. To me, 4% dilution is a small price to pay to ensure the future of a company that looked to be on its last legs just a few months ago.

Do the fundamentals justify owning AMC at current prices? Probably not. But in a world where corporate leadership is often venal, I applaud Aron for putting the company first and ensuring its future. In the long run, its employees, customers, and shareholders will benefit from that.

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Photo: “Police Stationed outside AMC Theater showing Joker film 4573” by Brechtbug is licensed under CC BY-NC-ND 2.0

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