What happened

Shares of AMC Entertainment Holdings (AMC -1.76%) have been incredibly volatile in recent days and that pattern continued Wednesday with the stock falling after the company entered to an agreement with Goldman Sachs and B. Riley to sell new equity shares, potentially diluting existing shareholders.

As of 11:42 a.m. EST, the stock was down 10.8%.

The entrance to an AMC multiplex.

Image source: AMC Entertainment.

So what

In a filing last night, AMC announced that it planned to sell up 20 million shares through the two investment banks. If the offering is fully granted, it would dilute current shareholders by nearly 20%.

AMC is desperate to raise cash as the company said in October that it could run out of money by the end of this year or early next year if it doesn't get a significant cash infusion. At the current share price near $3, the offering would raise about $60 million. By comparison, in its third quarter, the company had a free cash flow loss of $385 million, and said that it burned through more than $230 million in cash in July and August, though it said its future cash burn rate would be difficult to predict. In other words, $60 million may not last very long.

The company has been hammered by the pandemic on multiple fronts like much of the consumer discretionary sector. Theaters were closed until August due to local regulations, and even now capacity is limited. Audiences have been slow to return given safety concerns, and most studios are refusing to release movies in theaters until they're confident that audiences will return.

Now what

AMC shareholders have gotten something of a reprieve after Pfizer announced that its coronavirus vaccine candidate was successful in more than 90% of participants. The stock jumped as much as 76% on the news, which also provides a foreseeable end to the pandemic and will therefore make it easier for the company get funding.

Still, even if it survives the crisis, its balance sheet will be in tatters, shareholders are about to be significantly diluted, and the movie theater industry is already in a secular decline. It's hard to see a long-term upside here.