Since the year began, retail investors have been making their presence known on Wall Street. Even though John and Jane Q. Public have been putting their money to work in the stock market for more than a century, they’ve never rocked the boat quite like they have in 2021.
At the heart of this retail movement is movie theater chain AMC Entertainment (NYSE:AMC).
For AMC’s retail investors, who refer to themselves as “apes” — an homage to Rise of the Planet of the Apes, whereby apes are deemed “stronger together” — the company represents a battleground stock where they can stick it to Wall Street.
In the eyes of apes, AMC’s share price has been manipulated by Wall Street, with hedge fund giant Citadel, headed by billionaire Ken Griffin, taking on the role of chief villain in their story. AMC’s retail investors believe that short-sellers are trying to bankrupt AMC, and that it’s their duty to somehow teach these pessimists a lesson. But as you’ll see, apes don’t really care about AMC at all. All they care about is furthering their agenda, no matter how misinformed it is.
AMC’s apes continue to tie CEO Adam Aron’s hands
Ask any of AMC’s apes on social media, and they’ll proudly tell you they helped saved AMC from bankruptcy. However, this couldn’t be further from the truth.
Last year, and in early January, before retail investors were able to effect a short squeeze in AMC, the company was forced to issue hundreds of millions of shares of new stock, along with debt that sported a double-digit percentage interest rate, to survive. The capital these share sales and debt issuances raised is what ultimately spared AMC from filing for bankruptcy.
Since the late January short squeeze, AMC’s ape army has had two separate instances where they genuinely could have saved AMC. Both times, they chose to tie CEO Adam Aron’s hands and favor their own misguided agenda over helping out the company they swore to protect.
In March, AMC filed proxy paperwork with the Securities and Exchange Commission that would have effectively allowed it to double its authorized share count to about 1.02 billion. The proxy vote was to allow for the issuance of up to 500 million shares. To be clear, this didn’t mean AMC was going to issue 500 million shares, or that the issuance would have occurred all at once. It was merely designed to give Aron and the board the flexibility to issue stock to raise capital, should it be needed.
Why would AMC need capital, you ask? For one, the pandemic ravaged its operations, and it’s still burning through quite a lot of cash. AMC was also dealing with a steady decline in movie ticket sales for nearly two decades prior to the pandemic, and management had extended the balance sheet by purchasing other theaters, as well. It’s now sitting on more than $5.4 billion in debt that, according to the 2027 bond prices, bondholders aren’t sure the company can pay back.
If this weren’t enough, AMC is also contending with $473 million in deferred rental obligations from the pandemic, as of March 2021. If AMC can’t make good with its landlords, its rental costs are going to soar.
By pushing back against the 500-million-share proposal — AMC eventually pulled this proxy vote — apes denied the company the opportunity raise capital to put itself on better financial footing.
And then it happened again! AMC’s Aron laid out a clear case in early June to authorize the sale of up to 25 million shares of stock, which would occur in 2022. But enough AMC apes expressed concern about the potential for share-based dilution that Aron and the board again scrapped the idea last week.
AMC’s apes had the opportunity to finally do something good for the company twice, and both times they chose to vote down measures to raise capital.
The apes’ agenda is all that matters to apes, and that’s bad news for Aron
So, what do apes care about?
Pretty much the only consistent message you’ll find on Reddit, Twitter, Yahoo!, and whatever other message board the company’s retail investors use to drum up interest in the stock, is that a short squeeze is coming — a squeeze these folks have been crowing about for five months and counting, which is in no way guaranteed to occur. These folks are so concerned with the idea that new shares being issued could disrupt their squeeze that they continue to deny AMC’s CEO his wish for improved financial flexibility.
The ape agenda also requires bringing in new retail investor capital, which would presumably be tougher to do if AMC were even modestly diluting existing shareholders. Nevertheless, the cash flow data is pretty clear that the company is going to need to sell additional shares if it’s to survive for years to come.
At this point, apes have demonstrated on message boards and via YouTube that they’re willing to support a misinformation campaign if it’ll help their agenda. For example, they continue to put forward the incorrect assertion that hedge fund short-selling bankrupts companies, all while ignoring the tangible reasons an underlying business might be struggling. By misinforming others about the culpability of institutional short-selling, apes are trying to lure new investors to what’s effectively become a pump-and-dump scheme.
Aron and the board have a small window to truly capitalize on AMC’s artificial price gains, and it’s quickly closing. Unless apes suddenly come to their senses, AMC could be back on bankruptcy watch within a few years.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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