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Report: Amazon in Talks to Buy AMC Theaters

By Anders Bylund – May 11, 2020 at 9:15AM

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The struggling movie theater chain may have found an effective exit strategy, but Amazon holds all the cards in these negotiations.

Troubled movie theater chain AMC Theaters (AMC 13.81%) may have found the white knight that will save the company from financial ruin. E-commerce giant (AMZN 4.50%) is kicking AMC's tires, preparing for a possible buyout.

AMC's exit strategy

Amazon has approached AMC to discuss a potential acquisition deal, according to a report from British newspaper The Daily Mail. These early-stage discussions may or may not result in a deal, said the Mail's anonymous insider sources, and it is unclear whether or not they are ongoing. In other words, AMC may be left without an Amazon deal in the end.

There is no doubt that AMC's shareholders would welcome a buyout at this point. AMC's market cap has plunged 50% lower in the last 52 weeks and 80% lower in three years. The company was battling the rise of online streaming services when the COVID-19 crisis arrived, closing the doors to movie theaters around the world and pausing AMC's only real revenue stream.

A dark and empty movie theater.

Image source: Getty Images.

Amazon's position

Amazon is no stranger to large buyouts in offline consumer services. The company picked up high-end grocery store chain Whole Foods for $13.7 billion three years ago, so AMC's price tag looks affordable by comparison. Amazon's coffers currently hold $36.4 billion of unrestricted cash equivalents.

But Amazon probably wouldn't pay half a billion for AMC. The company would also shoulder AMC's crippling long-term debt portfolio of $4.75 billion, which drives the company's enterprise value up to $4.9 billion today. That's still far below the price tag for Whole Foods, but we're also comparing a profitable grocery chain to a struggling movie theater operator here.

The coronavirus pandemic may force AMC to accept a buyout from Amazon at bargain-basement prices, and the online retailer could very well walk away from these talks. Stay tuned.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Anders Bylund owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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