Is Amazon thinking about buying AMC Theaters?

Recent reports suggest that investment advisors of Amazon are considering buying AMC, a movie theatre chain that has been struggling financially due to the end of the meme trading frenzy during the Covid-19 pandemic. This news has caused AMC’s stock prices to increase, with shares reaching a high of $5.13 at the time of writing.

Sources familiar with the discussions suggest that if Amazon does acquire AMC, the movie theatres could be used to promote Amazon Prime films, act as distribution centres for Amazon products, and potentially even be used as hubs for delivering groceries. However, it’s important to remember that this is currently just speculation, and there is no guarantee that the acquisition will actually happen.

After buying AMC, will Amazon become the biggest movie theatre chain?

In 2020, there were already speculations that Amazon might buy out AMC and become the biggest movie theatre chain in the world. However, this didn’t happen because of the Paramount Decree, which was a law that prohibited film studios from acquiring movie theatres due to anti-trust laws.
But in 2019, the Department of Justice reviewed the decree and decided to terminate the Paramount Case, which means that the law is no longer applicable.

Is Amazon thinking about buying AMC Theaters?
Credits: New York Post

This paves the way for Amazon to potentially acquire AMC’s theatres if they decide to do so. The decree started a two-year sunset termination period on August 7, 2020, and it’s no longer a barrier to Amazon’s potential acquisition. However, it’s important to remember that these are just possibilities, and there is no guarantee that Amazon will acquire AMC.

AMC has incurred high costs in building and expanding its empire

One issue for Amazon shareholders regarding a potential acquisition of AMC is the amount of debt that the company would have to take on. Despite having a large number of theatres in the US and worldwide, AMC has incurred high costs in building and expanding its empire.

In the most recent fiscal year, AMC Entertainment had total revenues of $3.9 billion. However, its operating costs were $4.4 billion, resulting in an operating loss of $0.5 billion in 2022. After taking into account borrowing costs, the company had a net loss of $1.0 billion for the year. This means that Amazon would potentially have to take on a significant amount of debt if they acquire AMC, which could impact the company’s financials and shareholders returns.

In addition to the financial losses, the balance sheet of AMC Entertainment also poses a concern for potential investors like Amazon. The company has a cash balance of only $0.6 billion and total assets of $9.1 billion. On the other hand, its current liabilities amount to $1.7 billion, and after corporate borrowings of $5.1 billion and other liabilities, the company’s total liabilities come to $11.8 billion. This means that the company’s liabilities are greater than its assets, which results in negative equity for the shareholders. This could be a cause for worry for Amazon shareholders if they consider acquiring AMC.