AMC Volatility Warning: What’s Going On?

Last Updated on June 10, 2021

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AMC Entertainment, a movie theater company that has been in business for more than a century, should be enjoying what some have considered a bullish moment for the industry, as people come out of confinement and want to get back to “old normal” forms of out-on-the-town entertainment. But it has found itself cautioning people against investing in its Class A common stock unless they are prepared for the volatility.

On Thursday, June 3, in a statement filed with the U.S. Securities and Exchange Commission, AMC said that it plans to sell  12 million class A common shares through B. Riley Securities, Inc. and Citigroup Global Markets “from time to time, through an “at-the-market” offering program.” It also said that ” the recent volatility and our current market prices reflect market and trading dynamics unrelated to our underlying business, or macro or industry fundamentals, and we do not know how long these dynamics will last.” Under those circumstances, it continued, “we caution you against investing in our Class A common stock, unless you are prepared to incur the risk of losing all or a substantial portion of your investment.”

Near Past and Near Future

Yes, as Sam Goldwyn is supposed to have said, “prediction can be difficult, especially about the future.” And Goldwyn knew the movie business!

But the near future looks especially tricky when the near past looks especially erratic. The erratic behavior of stock prices is known as “volatility” or, sometimes, more simply, just as “risk.”  On June 1, AMC’s stock price (NYSE:AMC) closed at $26.52. On June 2, $62.55. By the end of the week, after a lot of craziness we will omit here, it had roughly split the difference between those two prices: it was at $47.91.

Microaxis has calculated that AMC’s volatility is 15.5665% on return distribution over a 90 days investment horizon. This is astonishingly. For purposes of comparison, the equivalent number for DOW is 0.6633%. The equivalent number for Disney, which supplies much of the content for AMC’s theatres, is 1.401%.

So, with regard to AMC: what is going on?

Record Day Behind, Meeting Ahead

Wednesday, June 2, the day of AMC’s sudden rise above the $60 mark, was also the “record day” for the next corporate shareholder meeting (scheduled for July 29). That is, a person or institution must have been the owner of record on June 2 in order to be qualified to vote at that shareholder meeting. Advance voting will begin on June 16. It is natural to expect that the wild moves and the upcoming meeting are related.

But that isn’t a full explanation. Why is that meeting especially important? Earlier this spring AMC planned to use that meeting to ask shareholders for approval to issue 500 million fresh shares. This would have effectively doubled the number of shares in circulation, accordingly constituting a significant loss in the value of the shares already in the market. After much negative feedback (to be polite) the company cancelled that plan. But it still wants to ask for authority to issue new shares, albeit a smaller block. It wants to issue 25 million fresh shares.

In the words of the chief executive, Adam Aron, “To successfully navigate the road ahead, we seek to assemble all of the financial tools that might help us. An important tool for any company is having shares available to issue if, and only if, the right value creation opportunity arises.”

Final Thoughts

The roller coaster ride of stock prices might be explained by the relief of some that the 500 million plan has been cancelled, at war with the frustration of others that Aron still seems intent on as much stock dilution as he can get permission for.
Under these circumstances, one can come to an understanding of the unusual language AMC employed cautioning against the purchase of its stock. There is a tug-of-war in progress, the best thing for non-combatants to do is to stand out of the way. And the best thing for company management may be, as one market pundit put it, “preempting litigation with honesty.”