M&A chatter swirled around AMC Entertainment Holdings Inc. this week after a report that Amazon.com Inc. is weighing an acquisition of the movie-theater chain and meme-stock darling.
AMC's $(AMC)$ stock jumped Tuesday on a report by The Intersect that Amazon.com Inc. $(AMZN)$ is exploring a possible acquisition. But the report added that there is no certainty the tech giant will make an offer.
Joshua Warner, a market analyst at StoneX Group Inc. (SNEX), is unconvinced that an acquisition will happen. "A takeover would be small change for Amazon, but we believe a takeover looks highly unlikely at this level," he said in a statement. "Amazon has a better chance biding its time and waiting for AMC's value to fall, considering it remains in a challenging position. It is worth remembering that this isn't the first time AMC shares have popped on speculation of an impending takeover from Amazon before, only to fall back after nothing materialized."
But Warner thinks the rationale for Amazon entering the cinema space holds water. "The company is ramping up spending on content as the steaming wars heat up, and it would give it direct control over theater releases, which could also give it the edge over rivals like Disney as they continue to release blockbuster hits on the big screen," he said.
But the analyst thinks Amazon would be better served looking beyond AMC to Cineworld Group Plc. , the U.K.-based movie-theater chain that filed for bankruptcy protection last year. "Markets should keep an eye on Cineworld, which looks a more attractive opportunity considering it has the 'for sale' sign up, is in an even more distressed position and comes with a much lower price tag with its valuation, down 88% since hitting trouble last year," he said. "We believe there is little chance that AMC can find a buyer right now considering its bloated valuation, slow recovery from the pandemic and excessive debt levels."
Wedbush analyst Alicia Reese also thinks Amazon would be better off buying a piece of Cineworld. Even if Amazon wanted a place to exhibit its own films, 1,000 screens would be plenty, and 200 would probably be enough, according to Reese. "The 'going rate' pre-pandemic was $250,000 per screen," she wrote, in a note Tuesday. "With the Cineworld bankruptcy, Amazon can probably cherry-pick screens for $200,000 and the creditors will grab an offer like that."
AMC's stock, which ended Tuesday's session up 12.8%, ended Wednesday's session down 2.9%.
Over the past two years, AMC has been on a roller-coaster ride that took it from beleaguered pandemic victim to meme-stock phenomenon. AMC's stock has risen 22.9% in 2023, outpacing the S&P 500 index's 4.9% gain.
Last year, AMC took aim at its massive debt burden with the launch of its 'APE' special dividend. The AMC Preferred Equity Units are up 2.8% this year.
Comments