Happy Friday!
I’m not going to spend too much time on AMC, but couple points that I found interesting about this week’s drama.
First, 761 million shares of AMC traded on Wednesday, but there were only 450 million shares outstanding. Read that last sentence again. More shares were traded than actual shares issued by the company. Eddy Elfenbein puts this into context by pointing out that every share was owned for less than four hours (on average).
Second, AMC is running out of shares. They began selling new equity late last year because people stopped going to the movies during COVID and the company was desperate. Some may argue that people stopped going to theaters way before COVID because of the absurd cost of going to the theater, the shift to streaming, and no good movies have been made in years. But whatever. Let’s just blame COVID for AMC’s troubles.
Fast forward to this week, and they sold more shares twice… in two days. On Wednesday, it was to a single investor and Thursday to the general public. Amazingly, the more interesting of the two sales was to the single investor because (1) that doesn’t happen all that often, and (2) the buyer paid a premium for the stock.
If a big investor approaches management and says they want an exclusive deal to buy stock, they almost always want a discount. It makes no sense to want to pay more for something when buying in bulk. Why walk on a car lot and offer 5% above asking price to buy out 10% of the cars on the lot? Why get excited to see Costco selling toilet paper for more than a local bodega?
But this is not a normal year. It’s 2021. This is the year when an artist sold an invisible sculpture for $18,300. So yeah, selling a bunch of stock for a premium makes complete sense – especially when you dig into the details and realize that the buyer had the right to flip the stock immediately.
This brings us to the crux of my second point. They have raised so much capital over the last few months that they are actually running out of shares. Here’s an excerpt from Matt Levine on Thursday:
“One year ago today, AMC had 52.5 million shares of Class A stock outstanding (and 104.3 million total shares). After today’s offering, it will have 513.3 million shares outstanding. Ninety percent of AMC’s Class A stock, and eighty percent of its total stock, has been issued over the last 12 months.”
He then goes on to say this:
“AMC’s corporate charter allows it to issue up to 524,173,073 shares of common stock; if it sells all the shares in this offering, it will have 513,330,240 shares outstanding. That leaves it with about 10.8 million shares it could issue in the future, though my math here is not exact; like most companies, AMC also reserves some shares to issue under its equity-based compensation plan for executives, so the actual number of shares it can sell after today could be quite low indeed.”
At 44 years of age, I’m old enough to remember when Apple products actually worked. I’ve also invested through more than one black swan, so I feel like I’ve seen some weird things in financial markets. But I have to say that this could be the first time I’ve ever found a corporate finance conundrum to actually be newsworthy.
Third, whereas other meme stock management teams have mostly shunned or ignored the retail mania around their respective stocks, AMC is embracing it. They seem to want to treat Reddit apes like they are PMs at Wellington and Capital Group. As if this cohort will patiently wait for management’s long-term plan of value creation to come to fruition.
Or maybe AMC is just thanking them for survival and boosting their executive compensation (presumably most of this is in stock) to levels that nobody in the c-suite could have dreamed six months ago. And by far the best part of the AMC saga this week was how they thanked shareholders for their generosity – by offering them a free bag of popcorn.
Think about that. The CEO and others are going to spend this weekend picking Venetian plaster and china for their new yachts while most shareholders probably won’t leave the comfort of their parent’s basement to get that free bag of popcorn. It’s simply impossible to hate capitalism during times like these.
Enjoy the weekend…
Mike on Markets 