AMC leveraged its status as a “memestock” like no other company, taking advantage of its rising share price to raise more than $800 million in June alone. Now, however, AMC’s retail owners are wondering, what’s next?
“Watch out naysayers, AMC is going to play on offense again,” CEO Adam Aron said June 1 after the company announced the sale of a tranche of stock to Mudrick Capital.
With blockbusters like Marvel’s Black Widow and Universal’s F9 set to hit movie theaters, bringing with them the potential for meaningful revenue and cashflow, what will the company do with its new funds? And what does going on offense mean for AMC?
Aron himself teased the possibilities in an interview with YouTuber Trey Collins, whose channel Trey’s Trades has been among AMC’s biggest boosters in recent months. (Collins’ videos to his more than 350,000 subscribers include descriptions like “AMC stock – There are only apes” and “Believe me, the apes are ready,” referring to some Reddit users who follow AMC stock and sometimes call themselves “apes.”)
In an hour-long interview June 3, Aron said that for AMC, going on offense could mean acquisitions. “We believe there is merger and acquisition opportunities for AMC, while AMC is clearly making it through this pandemic, there are others that are not,” Aron said. “Maybe there’s another movie theater we can buy, maybe there’s a great acquisition opportunity for us outside of pure-play movie theaters, that would allow us to vertically integrate and create real value for AMC shareholders.”
Specifically, Aron cited the theaters owned and operated by Pacific Theatres, including the ArcLight chain. And the company is following through, with plans to take over operations of two former Pacific properties in Los Angeles. (Pacific Theatres, which had operated 16 locations, said June 18 it filed for bankruptcy and indicated it had liabilities at around $69.08 million.)
The two multiplexes, at The Grove, which is adjacent to L.A.’s West Hollywood neighborhood, and The Americana at the Brand in Glendale, are low-hanging fruit in terms of traffic. They both are at popular outdoor shopping malls owned by Rick Caruso via his company Caruso. In pre-pandemic times, the Grove was often on the list of the country’s top 10-grossing theaters, while the Americana made the top 20.
Distribution insiders and analysts don’t believe AMC can afford to go on a major buying spree but that it will indeed make one-off deals such as taking over the leases of the Americana 18 and the Grove 16.
There were numerous suitors interested in taking over the Grove and Americana theaters, but AMC won out. There’s also keen interest in some of the ArcLight Cinemas, Pacific’s sister chain, such as locations in Sherman Oaks and Pasadena. Regal Cinemas has won the bidding for ArcLight Sherman Oaks, and has signed a multi-year lease.
Meanwhile, the marquee ArcLight Hollywood, home of the historic Cinerama Dome, apparently isn’t on the table at all since Pacific and ArcLight parent company the Decurion Corp. actually own the land under the Dome and may reopen the iconic locale itself.
The cost of assuming the leases of the Grove and Americana isn’t known, though a lawsuit filed earlier this year against Pacific Theatres for defaulting on rent reveals that the lease for the ArcLight in Santa Monica was roughly $172,000 a month. Movie theaters leases often run as long as 15 years.
Some analysts say that “going on offense” is the wrong move at the wrong time for AMC Theatres.
“Personally I would rather try to see them pay down debt than expand and get their balance sheet in good shape,” says MKM Partner Eric Handler. “And there’s not enough capital to go on a buying spree. He can probably do one-off transactions. He has to preserve cash because he is still burning cash.
“In our view, with a stabilized balance sheet, AMC would be best served by using its newly raised capital to reduce its sizable $5.5bn debt load,” Handler wrote in a research note June 8, adding that “management has been gifted an unforeseen opportunity from the recent wave of (fanatical) retail investor momentum, which has pushed the shares far above historical valuation levels.”
Despite Aron’s offense-heavy messaging, in the interview with Collins he seems open to deleveraging, or using some of its cash to reduce its other obligations.
“We might use it to pay down some of our expensive debt and to deleverage the company, that would be very good for AMC,” Aron said. “It would especially good if we could buy some of that debt at a discount and make a profit.”
Aron also noted that the company owes its landlords some $400 million in deferred rent stemming from last year’s shutdowns. “What if we go to some of those landlords and say, if you let us pay less, we will pay you now [rather than later as agreed].”
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June 22, 2021 at 07:01PM
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AMC Theatres Starts to “Play on Offense” Despite $5.5B Debt Load - Hollywood Reporter
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