AMC CEO reassures moviegoers as Cineworld prepares for bankruptcy

Yahoo Finance Live’s Brian Sozzi discusses Cineworld preparing to file for bankruptcy and how AMC CEO Adam Aron is responding.

Video Transcript

JULIE HYMAN: Cineworld, the owner of Regal Cinemas, is preparing to file for bankruptcy as the chain continues to struggle to rebuild from the COVID-19 pandemic. That's according to the Wall Street Journal. The shares are plummeting. This is a UK-based company. The shares are plummeting 58% in London trading.

Cineworld troubles caught the attention of AMC CEO Adam Aron. He took to Twitter to reassure investors that he is quite optimistic and confident in the future at AMC, especially because of the new APE security. That's, by the way, starts trading on Monday. The theater drama is where we find Brian Sozzi's take today.

BRIAN SOZZI: Yeah, look, and this-- my take on this was Adam Aron, CEO of AMC, just doing what he does, and that is doing things differently as it pertains to being the CEO of a public company. I think a lot of investors would-- there I am. Wow. It's just--

JULIE HYMAN: We jumped straight to the take today.

BRIAN SOZZI: I just jumped straight to the take. But I think a lot of-- I would love to see-- let's say if Walmart came out with earnings warning. Let's-- Target comes out the next day and says something about it. But that will never happen. But in AMC's Adam Aron's world, it does, in fact, happen. But this Cineworld thing is interesting, Julie. They operate 9,000-- almost to say 9,200 screens across the country. So any bankruptcy filing here from them could put a lot of pressure on AMC in the near term.

But I'll add this, if I've learned anything from covering retail for a while, a company like AMC, which has a close to a billion dollars in total liquidity, as Adam pointed out in tweet and a press release, he can go out there and buy some of these locations. He has not hidden the fact in recent earnings calls that he has been raising cash to go out there and buy other theater chains. Perhaps now that is the play here with Cineworld.

JULIE HYMAN: The reason that he's raising cash is because the business has not generated enough cash, particularly during the pandemic, but even before the pandemic, when theater attendance was slowing. So the question becomes, how long can AMC raise that cash in order to make up for what has been a waning business? Well, even if he buys more, then his cost basis is still higher, right, to run those additional theaters.

So even though he is drawing the contrast here, the contrast is not in the fundamental business. It's in the financial engineering around the fundamental business, just to make that very clear here. They're in the same business. They're in the same exact business.

BRIAN SOZZI: And there's a very important sting that is coming up Monday. That's when those Ape shares finally start trading in the New York Stock Exchange. That could free up a lot of cash for AMC to make some type of play for Cineworld. But you want to know the power of the retail investor, Julie? You have AMC's market cap at about $9.9 billion. Cineworld, after this latest move, under 100 million.

JULIE HYMAN: Just take a step back here. Remind us how exactly the Ape shares translate into cash. Uh-oh, I'm putting you on the spot here. You're shaking your head. How-- the Ape shares don't immediately mean any cash for AMC.

They only mean cash for AMC if one of two things happens. If they decide to issue more Ape shares themselves-- right now, the Ape shares are converted, right? They're issuing them for every AMC share. You get an Ape tracking or whatever we're calling this thing, right? So they're not raising any cash by issuing these shares.

BRIAN SOZZI: Not a traditional share sale, correct.

JULIE HYMAN: Right?

BRIAN SOZZI: Correct.

JULIE HYMAN: Those shares at some point could be convertible into existing equity of AMC, or they could sell-- decide to sell instead of just issuing, decide to sell Ape shares and raise cash that way. What's happening on Monday raises no cash for the company, to be clear. At that moment--

BRIAN SOZZI: I think he might--

JULIE HYMAN: --there no more money coming into the coffers.

BRIAN SOZZI: Right, but I think he also might be using this-- if there is a strong reception, then he can go to lenders and saying, hey, you know what? We have believers. Give us more cash.

JULIE HYMAN: Could.

BRIAN SOZZI: Could.

JULIE HYMAN: Perhaps. We'll see what actually happens versus what the Apes--

BRIAN SOZZI: This is a different CEO.

JULIE HYMAN: --hope--

BRIAN SOZZI: He's doing a lot of different things.

JULIE HYMAN: --will happen. He is doing a lot-- we'll see what happens. All right.