E-commerce and streaming giant Amazon (NASDAQ: AMZN) is supposedly considering buying AMC Entertainment Holdings Inc (NYSE: AMC), sending the theatre chain’s stock soaring by the most in a month.
As first reported by The Intersect and later cited by Bloomberg, Amazon’s investment advisors are once again allegedly exploring a potential acquisition of AMC, which has been left in financial turmoil after the meme trading frenzy of the Covid-19 era fizzled out.
The speculation sent AMC shares to a high of $5.13 at the time of writing. According to people familiar with internal discussions, if Amazon’s plan materializes, the theatres would be used to promote Amazon Prime films, serve as product distribution centers, or even grocery delivery hubs.
This is not the first time that Amazon has explored such a buyout; back in 2020, Forbes US published a piece speculating Jeff Bezos’ conglomerate would become the largest movie theatre chain in the world. The article’s prophesy didn’t end up coming to fruition likely because of the Paramount Decree, whereby the Supreme Court in 1948 ruled that film studios are prohibited from acquiring movie theatres as per anti-trust laws.
However, in a routine review of decrees, the Department of Justice in 2019 decided to terminate the Paramount Case, applying a two-year sunset period to the decree because it was “unlikely that the remaining defendants can reinstate their cartel.” The legislation, which began a two-year sunset termination period on August 7, 2020, is thereby no longer applicable, paving the way for Amazon to potentially obtain AMC’s theatres if it so wishes.
The problem at large
For Amazon shareholders however, the problem with such an acquisition appears to be the debt that the company would be beholden to in the event of an equity transaction. Despite having 357 theatres across the US and a further 236 theatres globally, there was a cost related to building that empire.
In the most recent fiscal year, AMC Entertainment generated total revenues of $3.9 billion, while operating costs totaled $4.4 billion, resulting in an operating loss in 2022 of $0.5 billion. After borrowing costs are taken into consideration, the firm posted a net loss of $1.0 billion for the year.
The balance sheet looked no better either, with the company having a cash balance of $0.6 billion and total assets of $9.1 billion. Current liabilities meanwhile came in at $1.7 billion, and after corporate borrowings of $5.1 billion and other liabilities, the companies total liabilities figure came in at $11.8 billion, giving shareholders negative equity in the company.
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