Here’s a press release that’s just landed from AMC Entertainment Holdings -- the $12bn distressed American cinema-chain-owner whose stock, since January, has become a popular trading toy among the retail investor crowd:
It’s hard to express just how good a deal this is for AMC. Back on January 19, raising just under quarter of a billion dollars in equity would have meant selling 35 per cent of the company, diluting shareholders aggressively in the process. Now? Investors are set to lose just 1.3 per cent of their claims on any future profits.
The cash will be welcome. Despite having raised over $1bn in capital since December, the financial health of the world’s largest cinema chain still looks precarious. At the end of the first quarter, AMC had $10.2bn of net debt. In 2022, analysts expect the company to turn $546m of ebtida, putting its net debt-to-ebitda ratio at around 19 times. And, remember, those profits are excluding any maintenance capital expenditure that AMC deferred while its cinemas were shuttered during the Covid crisis. Yet with the share price remaining elevated, raising more cash shouldn’t be an issue if it needs to return to the capital markets.
And perhaps the share price is the the most astonishing thing here. Back in early February, it was widely accepted that the Gamestop short squeeze, and the associated meme stonks, would be a flash in the pan. A quick burst would follow a quick bubble. But here we are, almost half a year later, and these names are still flying high. Gamestop’s market capitalisation is almost $16bn, some 13 times higher than it was on January 1. AMC’s stock, meanwhile, is up 54 per cent from its January 27 peak.
It strikes FT Alphaville that we’re getting to the point where the retail trading phenomenon can no longer be dismissed as a dumb flash of irrational exuberance but, rather, a new structural feature of US equity markets. In this new era of investment, certain ailing businesses can have their fortunes turned around — and sustained — by a motivated and coordinated mass of commission-free investors. In other words, distressed shareholder activism has become democratised.
And, dare we suggest, also validated? In early trading, AMC is up 15.4 per cent to a share price $30.00.