Just a few months ago, AMC CEO Adam Aron took advantage of retail traders to pull the company out of its “certain” demise. After billions in capital raised, retail traders – self-proclaimed “monkeys” – have now apparently signaled the limit on selling stocks. The situation illustrates a major change in finance, perhaps for the first time.
AMC indebted in more than one way
In early June, the Tokenist reported that 80% of AMC’s shares came into the possession of retail investors. Of these, many share their in-depth analysis in various subtitles. What they ultimately show is a reluctance to follow the more sophisticated fundamental analysis of companies, GameStop and AMC Entertainment in particular.
By going against the grain and historic valuations of these retail chains, the activity of retail traders has been extremely distressing for Wall Street short sellers, relieving them of $ 12 billion so far. Hedge fund bets against AMC’s decline have failed catastrophically.
Retail traders stepped in, finding and sharing evidence of naked short sales. Believing that many such positions still need to be hedged, retail investors led AMC’s market capitalization to increase by 3,000% in less than six months.
As a result, at the start of the business closures, the monkeys saved AMC from bankruptcy. From December 2020 to January 2021, AMC managed to raise $ 917 million in debt and equity capital by selling its shares at a high price. Between April and June, AMC had raised an additional $ 1.246 billion through the sale of shares.
Although the #SaveAMC online movement has succeeded in its mission, the movie chain still has a massive $ 5.5 billion debt. In an interview with Tremayne Collins in early June, AMC CEO Adam Aron noted several avenues that would allow AMC to get out of this crippling debt:
- Buy more theaters – Pacific Theaters, The Grove, Americana and others – to expand AMC’s market share, adding to its already large portfolio of 950 theaters.
- Vertical integration of content delivery.
- Sell stocks to reduce the company’s debt or buy debt at a discount.
- Take advantage of owners in distress by paying them less but immediately. Currently, AMC has approximately $ 400 million in debt to these owners.
However, Aron’s latest attempt to raise capital by selling stocks has now come to a halt due to the firm’s close relationships with retail traders. This in itself is a novelty on the financial scene that merits further exploration.
AMC will not sell 25 million shares
Appropriate for the monkeys’ involvement in the business, the relationship between them and AMC CEO Adam Aron has never been stronger. He not only launched AMC Investor Connect for them, but they can also receive a big free popcorn just for signing up. Additionally, CEOs are rarely seen participating in Zoom calls with their stakeholders without their pants on.
In an effort to solidify AMC’s future, Aron’s plan was to raise more than $ 1 billion by authorizing an additional 25 million shares, in addition to the 513.33 million AMC shares already in existence. However, this increase can only be achieved by a majority of stakeholder votes. As AMC Entertainment Holdings is incorporated in the state of Delaware, Aron would need at least 50% of the outstanding voting shares to enact the share increase.
According to Aron’s own tweet, the data suggests that the Apes are not fans of such a move, which has led to plans to be abandoned for the year 2021.
Whether the announcement helped or not, that didn’t stop AMC’s weekly price drop of 18%, down from $ 56.68 on June 30.e at around $ 46 at time of press.
It’s likely that AMC will derive revenue from providing entertainment, as we’ve seen this dynamic between leadership and fans before. After the final Star Wars trilogy unfolded, few were satisfied with the outcome. Plus, many blamed the overt restoration of the fanbase for how it turned out.
In monkeys, the interests invested are much more concrete. If they were to invest in AMC to deal with the short squeeze, it would not be in their best interest to vote for stock offers. At the same time, AMC has to contend with its significant indebtedness and volatile external factors.
No one can say yet how big the impact of the one-year lockdown will be on spending habits. Likewise, a harmful virus variant could completely derail the prospects for recovery, depending on how it is received. At such a time, a historically overvalued stock would only be the tool to deal with uncertainties.
At the same time, a strong argument could be made to do more with less, so as not to count and abuse the diamond hands of the apes.
Perhaps more importantly, this particular situation portrays something that we have yet to see in the world of mainstream finance. We have a proven CEO, abandoning what he thinks is the best way forward, in favor of retail investor support. The financial world seems to be changing, with retail taking center stage, perhaps for the very first time.
What do you think of AMC’s decision to forgo the sale of 25 million AMC shares? We would love to hear from you in the comments section below.
About the Author
Tim Fries is the co-founder of The Tokenist. He has a BSc in Mechanical Engineering from the University of Michigan and an MBA from the Booth School of Business at the University of Chicago. Tim was a Senior Associate in the investment team of RW Baird’s US Private Equity division and is also a co-founder of Protective Technologies Capital, an investment firm specializing in detection, protection and protection solutions. control.