AMC Entertainment is a company that produces movies ( AMC -2.14 percent ) Because of the positive response to his investment in gold and silver miner Hycroft Mining (HYMC 1.42 percent ), CEO Adam Aron said he’ll utilize the war chest he collected during the meme stock trading craze last year to pursue additional merger and acquisition (M&A) activities.
According to Reuters, “M&A that is transformational is required. Our investor base has provided us with funds in the explicit expectation that we would… achieve interesting things with the money they have committed to us.”
With $1.8 billion in liquidity burning a hole in AMC’s balance sheet, Aron has plenty of room to make dozens, if not hundreds, of new investments. Hycroft Mining cost AMC $28 million for a 22 percent stake in the company, and with $1.8 billion in liquidity burning a hole in the cinema company’s balance sheet, Aron has plenty of room to move to make dozens, if not hundreds, of new investments.
However, this does not imply that such mergers would be beneficial to AMC shareholders. Aron’s suggestion that he intends to utilize shareholder capital to construct an empire should give investors concern.
Exploiting a chance
The Hycroft transaction is already paying off for AMC, at least on paper. The stock of the miner was acquired at $1.07 per share and just finished at $2.32 per share, a 117 percent increase. For a two-week period, it’s not bad.
Hycroft also received an extra $28 million in funding from precious metals investor Eric Sprott, who invested alongside AMC. The theater chain then sold $139 million in additional shares, giving them a total of $195 million to work with.
The miner shut down operations in November, claiming that its company was unsustainable at the time due to low gold and silver prices, and that it intended to focus on developing a mill to process gold and silver sulfide ore, but it’s unclear whether this is achievable at a commercial scale.
However, Aron claims that the experience AMC earned in turning around a cash-strapped firm in serious financial problems is a valuable skill set that can be used to other businesses in similar situations.
“While the Hycroft venture is a long way from home,” Aron told Reuters, “it relies on a basic capability of our organization to analyse balance sheets, raise funds, and solve liquidity concerns.”
The fact is that AMC is still a financially troubled company that has done little to ensure its long-term viability. His plan is akin to having a mound of debt that you can’t pay off but getting a new credit card in the mail and spending even more.