The Meme Market is back with a vengeance.
And AMC (AMC) is playing a different game the second time around.
On Thursday morning, the company filed to sell up to an additional 11.5 million shares as its stock price continues a monster run higher.
On Wednesday alone AMC shares rose 95% and in pre-market trading on Thursday the stock was at one point up another 20%.
But this does not mark the company's first effort to capitalize on recent volatility.
Earlier this week AMC raised $230 million from Mudrick Capital in an offering the company said "will allow us to be aggressive in going after the most valuable theatre assets, as well as to make other strategic investments in our business and to pursue deleveraging opportunities."
On Wednesday, the company announced a new shareholder platform that will offer investors perks at actual movie theaters, including free popcorn. As we wrote in Thursday's Morning Brief, a company's stock is its currency and AMC is currently using a sharp rise in the value of this currency to improve its actual business.
And with all these moves, AMC CEO Adam Aron and the whole executive team at the company are putting the pressure on their peers running other companies caught up in the meme trade to not just let this market moment come and go. These are episodes that management teams must cash in on.
Back in the winter when GameStop (GME) was the focal point of the first meme stock rally that management team sat on its hands for months. And now GameStop is in the process of looking for a new CEO.
And while the rally in AMC and other meme names right now might not make sense, from the vantage point of a management team that tries to create value for shareholders the way to respond to this interest is clear: you sell stock until the market can't take it anymore.
AMC warns investors
AMC's filing on Thursday also does not obligate the company to sell additional shares now or at any time. It merely allows AMC to reserve the right to sell stock.
This filing is also full of all kinds of caveats that amount to AMC telling investors, "Do not buy our stock right now."
"We believe that the recent volatility and our current market prices reflect market and trading dynamics unrelated to our underlying business, or macro or industry fundamentals, and we do not know how long these dynamics will last," the filing said. "Under the circumstances, we caution you against investing in our Class A common stock, unless you are prepared to incur the risk of losing all or a substantial portion of your investment." The emphasis on this passage is the company's.
The filing goes on to discuss short squeezes, social media, retail trading platforms and a host of other factors that AMC believes might be driving volatility in its share price. And for all of this, AMC reiterates time and again, the company is not responsible and offers no assurances to existing or prospective shareholders that any of this makes sense or will last. It is a filing unlike any we can remember reading.
But the logic for a company to issue stock or pursue other initiatives when its stock prices goes nuts simple: as the price of your stock rises, the cost of raising capital falls.
For example, AMC's filing to issue 11.5 million shares on Thursday could, at current market prices of ~$60 per share, raise some $690 million for the company. Had the company sold 11.5 million shares at the beginning of May when shares were trading at around $10, however, that stock sale would've netted just $115 million to the company.
In general, selling stock is something companies would rather not do as it punishes existing shareholders by reducing their ownership stake. By doing nothing but watching the internet get interested in AMC memes, however, the company can now raise an additional $575 million and inflict no more pain on existing shareholders than it would have in early May. For a management team, this move is a no-brainer. The market is basically begging you to issue more stock at these prices.
And this shrewd move from AMC to sell stock into a wild market and then list caveat after caveat offers a clear blueprint to the teams over at companies like Bed, Bath & Beyond (BBBY), Express (EXPR), and BlackBerry (BB), all of which saw their share price rise more than 30% on Wednesday.
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