Will This IPO Get Poor Reviews?

Movie theater chain AMC Entertainment hopes to get top billing as it prepares to go public.

Though this hasn't been a record-breaking year for the industry, as box office receipts have remained flat year over year (even though ticket prices are slightly higher this year), AMC is hoping to cash in on the momentum that's driven Carmike Cinemas (NASDAQ: CKEC  )  up 56% in 2013, along with Regal Entertainment (NYSE: RGC  )  shares rising 43% and Cinemark Holdings (NYSE: CNK  )  trading 30% above the level at which it started the year.

To better its IPO's chances of success, AMC is pushing a marketing gimmick that will allow theatergoers themselves to buy into the offering at the same time Wall Street and the chain's employees do and do so at no cost.

In a letter released yesterday to AMC's loyalty cardholders, the theater operator said it was reserving a limited number of shares for them to buy between $100 and $2,500 worth of stock on a first-come, first-served basis, with no fees attached. AMC plans to offer 21 million shares at $18 to $20 each, but it's reserving 110,527, or 0.6% of the total, for outsiders, and an additional 230,264 shares, or 1.25%, for company executives and employees.

The loyalty cardholders and employees would have to buy them through Loyal3, a new start-up online broker that offers commission-free trading. Rather than charge the investor a fee for making trades, Loyal3 charges the companies for providing social branding services through the stock listing. It lists companies as diverse as Abercrombie & Fitch, Amazon.com, and Microsoft among its dozens of stocks available for purchase.

While there's no account minimum required to buy stock, meaning you can buy as little as $10 worth of a company (fractional shares are available), IPOs do require a $350 deposit, though if you don't use the entire amount to purchase shares, you can withdraw the balance without penalty.

Direct-to-investor IPO sales are not new, but no-cost access to IPOs is a unique development and could become a huge phenomenon all on its own. Yet even more so than regular investing, IPOs requires a significant amount of due diligence on the part of the investor to determine if the company is a good deal regardless of whether you're paying fees for the chance to own shares.

AMC is owned by the Chinese conglomerate Dalian Wanda Group, which bought the former last year for $2.6 billion and after the IPO will retain a majority ownership stake in the theater operator.

The chain, which owns 343 theaters representing 4,937 screens, expects to net around $323 million from the offering after expenses, and plans to use the cash to retire some debt. As well it might. Wanda's larded it with debt to the tune of $2.19 billion and has warned that if interest rates rise it may not be able to service its debt load. Although AMC intends to pay a dividend beginning with the first quarter of 2014 in the amount of $0.20 per share, it also notes it's regularly lost money over the past few years, which just might cause investors to give its IPO a poor review.

A lot of the gains that have been made by Regal and Carmike have been as a result of consolidation occurring in the industry along with generally rising ticket prices. Cinemark completed the acquisition of 32 theaters representing 483 screens from Rave Theaters back in May, and before that Regal bought 43 theaters representing 513 screens from Hollywood Theaters.

Also, as big screen and 3-D films proliferate, the theater operators have been able to charge more per ticket, so despite the average price being only nominally higher in the third quarter, they actually hit a record of $8.38 a stub in the second. We can probably expect ticket prices to bounce back this quarter since big-budget movies like Gravity and The Hobbit: The Desolation of Smaug will hit the screens.

The potential for theater operators to earn a star on Hollywood's Walk of Fame appears high, but there are a lot of nuances in AMC's IPO that, for all the glitz, may still find it ending up on the cutting room floor.

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