AMC stock extends rally, jumps 20% as movie chain sells new stock

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AMC Entertainment shares surged again on Tuesday after the movie chain sold more than 8 million shares to an investment firm, the latest in a series of capital increases for the ailing company that has become a stock of meme.

AMC said in a securities filing that it raised $ 230.5 million through a sale of shares to Mudrick Capital Management. The theater company said it would use the funds for potential acquisitions, modernizing its theaters and deleveraging its balance sheet.

The shares were up 22.6% at the close of the market.

On Tuesday afternoon, Bloomberg News reported that Mudrick had sold all of his new shares in AMC. The stock fell from its highs the day after the report.

AMC’s operations were effectively halted during the pandemic, with theaters closed in most of the country for months and major studios delaying releases during the pandemic. However, the stock has become a favorite for traders on Reddit and has seen some crazy swings in recent months.

Stocks doubled last week with incredibly high volume as speculative activity by retail traders driven by message board discussions rose again.

The company took advantage of these price spikes by selling additional shares to raise funds. The stock is up over 1000% since the start of the year.

“Given that AMC is raising hundreds of millions of dollars, this is an extremely positive outcome for our shareholders,” CEO and Chairman Adam Aron said in a filing. “This was achieved through the issuance of only 8.5 million shares, representing less than 1.7% of our issued share capital and only a small portion of our typical daily trading volume.”

Dramatic price swings could also be due to a short squeeze in the stock, caused by traders betting against the stock by buying stocks to limit their losses. About 20% of the company’s issued shares are sold short, according to S3 Partners.

AMC has about $ 5 billion in debt and has had to defer $ 450 million in lease repayments as its revenue largely dried up during the pandemic. Theaters were closed for months to help stop the spread of the virus, and when the company reopened, few consumers felt comfortable attending screenings, and movie studios withheld the news. exits.

Now, as vaccination rates rise and the number of coronavirus cases decline, consumer confidence in returning to the movies has increased. Not to mention that the studios are finally releasing new content.

Over the weekend, John Krasinski’s “A Quiet Place Part II”, the sequel to his 2018 blockbuster, grossed $ 48.4 million on Friday, Saturday and Sunday, the most of a three-day release. film during the pandemic.

For the full four-day Memorial Day weekend, the North American box office recorded nearly $ 100 million in ticket sales.

Yet while initial box office revenue is promising, fundamental elements of the film business have changed over the past year, including room capacity, release dates shared with streaming services, and the number days during which the films are shown in theaters.

AMC’s securities filing, which closed on Friday with a market cap of $ 11.8 billion, also contains a risk warning to investors: “Our market capitalization, as various trading prices imply, currently reflects valuations that diverge significantly from those seen before the recent volatility and that are significantly higher than our market capitalization just before the COVID-19 pandemic, and to the extent that these valuations reflect trading dynamics unrelated to our performance or outlook financial, buyers of our Class A common shares could suffer substantial losses if the market price drops as a result of a return to previous valuations. “

—With report of CNBC Sarah whitten.

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