AMC Entertainment Sold $230M Of Stock To Firm That Just Liquidated Position, Calling Shares Overvalued – UPDATE

UPDATED to include Mudrick Capital stock sale: Mudrick Capital, which just acquired 8.5 million shares of AMC Entertainment — helping the chain raise $230 million — has now liquidated its entire holding in the exhibitor, according to a report in Bloomberg.

Mudrick couldn’t immediately be reached for comment. But according to the report, the firm felt the share were overvalued. That’s not surprising given the social-media fueled explosion in the stock price — including today — that goes beyond any enthusiasm generated by a strong weekend box office.

AMC still has the cash, however, and said this morning it plans to “go on the offense” and use it to pursue acquisitions of leases, including any that may emerge from ongoing discussions with landlords of locations formerly operated by Arclight Cinemas and Pacific Theatres.

PREVIOUSLY: Theater chain AMC Entertainment said early Tuesday it’s agreed to sell 8.5 million shares to Mudrick Capital Management, raising $230.5 million in cash that it will use for acquisitions.

The equity was raised at a price of approximately $27.12 per share. Proceeds from this share sale primarily will be used for the pursuit of “value creating acquisitions” of additional theater leases, “investments to enhance the consumer appeal of AMC’s existing theatres” and deleveraging, the company said.

“Given our scale, experience and commitment to innovation and excellence, AMC is being presented with highly attractive theatre acquisition opportunities. We are in discussions, for example, with multiple landlords of superb theatres formerly operated by Arclight Cinemas and Pacific Theatres,” said CEO Adam Aron.

“With this agreement with Mudrick Capital, we have raised funds that will allow us to be aggressive in going after the most valuable theatre assets, as well as to make other strategic investments in our business and to pursue deleveraging opportunities.”

He noted the shares issued represent less than 1.7% of our issued share capital and only a small portion of daily trading volume. “This transaction underscores the real value of having some authorized share capital available for us to opportunistically capitalize on shareholder value creation possibilities as and when they arise.”

“With our increased liquidity, an increasingly vaccinated population and the imminent release of blockbuster new movie titles, it is time for AMC to go on the offense again,” he added.

Exhibition has been particularly hard hit by Covid and established players who weathered the pandemic have acknowledged that it’s created opportunities. Last month, Marcus CEO Greg Marcus said he’d “welcome discussions” on Arclight Cinemas and Pacific Theaters. Decurian, owner of the chain, announced in April it won’t be reopening. Its crown jewel is the Hollywood Arclight on Sunset Boulevard, one of the highest-grossing movie theaters in the nation, and the adjacent Cinerama Dome beloved by filmmakers.

AMC shares — which are the focus of aggressive support by retail traders on social media chatrooms — surged in pre-market trading, up more than 13% at over $29.

In an SEC filing disclosing the stock sale agreement and accompanying prospectus, the company acknowledged that “extreme fluctuations in the market price of its Class A common stock have been accompanied by reports of strong and atypical retail investor interest, including on social media and online forums.”

Shares have fluctuated wildly from under $2 to over $36, which it said can create risk for investors. “If the market price of our Class A common stock declines, you may be unable to resell your shares at or above the price at which you acquired them. We cannot assure you that the equity issuance of our Class A common stock will not fluctuate or decline significantly in the future, in which case you could incur substantial losses,” AMC noted.

The stock volatility appears to have been caused in part by a short squeeze – where coordinated trading activity causes a price spike as traders with a short position make market purchases to avoid or mitigate potential losses. Investors “purchasing at inflated prices unrelated to our financial performance or prospects,” the company said, “may thereafter suffer substantial losses as prices decline once the level of short-covering purchases has abated.”