AMC Entertainment (AMC) operates a chain of movie theaters. It has been linked to a possible deal with Amazon (AMZN). AMC stock soared alongside GameStop in January as an army of retail investors on Reddit took on Wall Street elites. Billionaires Elon Musk and Chamath Palihapitiya supported the retail investors. AMC stock has retreated from its recent peak as beneficiaries of the epic short squeeze move to take profits. Will Amazon take advantage of the pullback in AMC stock and buy the company?
AMC Entertainment is among the world’s largest movie theater chains, but its business has been struggling. First, online video streaming services like Netflix are giving movie theaters tough competition for customers. Also, the movie theater business has taken a hit amid the coronavirus pandemic as people try to avoid crowded places. Many movie theater stocks have been depressed, which could attract acquirers seeking bargain deals.
Will Amazon buy AMC Entertainment?
Rumors about Amazon buying a movie theater have been swirling for some time. In May 2020, The UK Daily Mail reported that Amazon held talks about acquiring AMC Entertainment. The report caused a big move in AMC stock.
Amazon has been linked to theater investments beyond AMC Entertainment. In 2018, there were reports about Amazon seeking to buy Landmark Theaters. However, Amazon lost the deal to Cohen Media Group. In 2019, there were rumors about Amazon investing in Egyptian Theatre. Netflix ended up acquiring the Hollywood theater operator.
Acquiring AMC Entertainment or another theater network could benefit Amazon in a variety of ways. It could allow Amazon to extend the reach of its shows and movies, potentially enabling it to make more money from its production business.
Amazon might include free theater tickets with a Prime subscription, which could boost the appeal of the service, attract more subscribers, and generate more subscription revenue. Prime subscribers pay $119 per year to unlock a range of perks including free delivery for Amazon retail shopping and video streaming.
Amazon is trying to cut the time it takes to get packages to customers as it fights off competition as traditional retailers like Walmart move into e-commerce. If Amazon acquired AMC Entertainment, it could use its theater locations as pickup points for its commerce customers. For AMC Entertainment, being bought by Amazon could help end its financial struggles.
What happens to stock after an acquisition?
How an acquisition is paid for determines what happens to the stock of the acquired company after the deal closes. A company can pay an acquisition entirely in stock, which happened in the merger between T-Mobile and Sprint as well as Microsoft’s deal with GitHub.
A company can also pay for the deal entirely in cash, which is what happened when Google acquired Fitbit. The other option is to pay for an acquisition with a mixture of cash and stock, which is what happened in the transaction between Disney and 21st Century Fox.
In an all-stock deal, investors in the company being bought exchange their shares for shares in the acquiring company. In a cash-and-stock deal, investors receive a portion of the payout in cash and also receive shares in the acquiring company. Usually, they end up with a minority stake in the merged company.
In an all-cash deal, investors convert all of their shares into cash but don't get a stake in the merged company. Instead, they can independently buy shares in the acquiring company after they receive the cash.
An all-stock or cash-and-stock payment would be favorable if the stock of the acquiring company is expected to appreciate. Meanwhile, an all-cash transaction locks in the value for shareholders in the business being bought.
Will AMC stockholders have AMZN stock if the sale closes?
In an acquisition deal, companies negotiate for what they think will deliver the best outcome for their shareholders. If AMC management thinks that shareholders would be better off owning a piece of AMZN stock, they could settle for an all-stock or cash-and-stock deal. However, Amazon might want to pay for the deal in cash and exclude AMC shareholders from its stock.