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Why AMC Entertainment Stock Was Skyrocketing Today

By Jeremy Bowman - May 11, 2020 at 11:27AM

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According to reports, the world's largest movie theater chain is being courted by Amazon.

What happened

Shares of AMC Entertainment (AMC 8.03%), the world's biggest movie theater operator, were soaring today on a report in the Daily Mail that Amazon (AMZN -0.99%) was considering buying the movie theater chain. Like much of the entertainment industry, AMC stock has fallen sharply during the pandemic as its theaters in the U.S. and much of the rest of the chain remain closed, and its future is highly certain.  

The stock jumped on the news, as it gave investors hope for an exit strategy. As of 10:23 a.m. EDT, the stock was up 28%. It had gained as much as 56% earlier in the day.

An AMC movie theater in California

Image source: AMC Entertainment.

So what

The British tabloid said that according to sources, the two companies had held talks about a possible takeover, though it's unclear if they are still active.  

The stock pulled back from its peak after Hollywood news website Deadline reported later in the morning that its sources said there were no talks. 

Such a deal would significantly elevate Amazon's position in entertainment, as the company has long been active in video streaming and also has a strong business in connected TV devices with products like Amazon Fire TV and Fire TV Stick. An acquisition of AMC would mirror in some ways Amazon's takeover of Whole Foods in 2017 as the company dove into brick-and-mortar grocery retail after years of slow growth in AmazonFresh, its homegrown online grocery brand.

AMC appears to be nearing bankruptcy, as the company was already highly leveraged before the pandemic. Shutting down most of its theaters around the world has crushed its business, so it's evident why the company would seek a buyer. However, a sale to Amazon would likely receive significant pushback from studios and possibly regulators. A recent dispute between AMC and Comcast-owned Universal Studios shows relationships between industry stakeholders already straining. After the studio said it would take Trolls direct to consumers, AMC said it would ban its movies from its theaters.

Now what

The entertainment industry is already experiencing a seismic disruption from the pandemic. Hollywood production has shut down, movie theaters are closed, and streaming at home has skyrocketed. The crisis will significantly reshuffle the industry no matter what happens, but an Amazon takeover of AMC could make entertainment industry dynamics virtually unrecognizable and intensify tech companies' disruption.

The rumors may be just that, but AMC seems to need some kind of partner in order to continue as a viable business.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jeremy Bowman owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends Comcast 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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Stocks Mentioned

AMC Entertainment Holdings, Inc. Stock Quote
AMC Entertainment Holdings, Inc.
$23.96 (8.03%) $1.78, Inc. Stock Quote, Inc.
$139.41 (-0.99%) $-1.39
Comcast Corporation Stock Quote
Comcast Corporation
$38.59 (0.84%) $0.32

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