Will AMC Pay the Price for Believing in Its Own Good Luck?

It can be risky to be put on a pedestal. Depending on the soundness of the monument’s base, the whole thing can come tumbling down at the slightest breeze or tremor.

Something like that might have happened to AMC Entertainment Holdings Inc. (NYSE: AMC) Thursday morning. The company filed with the U.S. Securities and Exchange Commission to sell 11.55 million shares of stock from time to time in at-the-market sales. Citigroup and B. Riley signed on as sales agents for the offering for a commission payment of 2.5% on gross sales.

All this just two days after the company issued 8.5 million shares to Mudrick Capital Management in exchange for $230.5 million in cash. Not a bad deal, on its face, except that Mudrick turned right around (as it was free to do) and resold the shares. AMC’s share price bounced around a bit, but it ended Tuesday’s trading session up 23%. The stock price nearly doubled on Wednesday as some investors couldn’t resist the allure of a stock soaring into the stratosphere on popcorn.

To be fair, CEO Adam Aron gave a shout-out to retail shareholders who now own more than 80% of AMC’s outstanding stock and invited all of them (more than 3 million) to the company’s annual meeting on July 29. The company is creating a “proactive communication initiative” to stay in close touch with those investors and to give them special benefits at AMC theatres. The kickoff benefit: “a free large popcorn on us, when they attend their first movie at an AMC theatre this summer.”

Even the most fanatical popcorn investors know that issuing 20 million shares of new stock is not a debt easily repaid by a large, free tub of popcorn. As Matt Levine over at Bloomberg pointed out Thursday morning, AMC has increased the number of its Class A shares outstanding from 52.5 million a year ago to 501.8 million as of June 2.

So what do retail investors have to do? They almost have no choice but to buy more shares in order to prop up the share price. And what should AMC do? Levine suggests selling many fewer shares for much larger sums. With only about 10.8 million authorized shares left to sell, the company could sell all but one and make that one an NFT and sell it for, say, $69 million. Levine reckons that there’s a 25% chance that AMC will auction off that last share for some astronomical price.

AMC stock fell by nearly 40% Thursday morning but fought back to down about 11.5% at $55.48 in the early afternoon. The stock’s 52-week range is $1.91 to $72.62, a high posted on Wednesday. It looks like Thursday and Friday could repeat AMC’s trading action of Monday and Tuesday and that the company (actually, its investors) could pull another rabbit out of the hat.

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