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AMC Entertainment Is Selling $230 Million in Stock to Finance Acquisitions

By Rich Duprey - Jun 1, 2021 at 9:27AM

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The theater operator just sold 8.5 million shares at a premium.

AMC Entertainment Holdings (AMC -4.01%) is going on the offensive, selling over $230 million worth of stock to hedge fund operator Mudrick Capital Management at a premium so it can use the proceeds to make acquisitions.

The theater operator is selling 8.5 million shares to the private equity firm at a price of $27.12 per share, a nearly 4% premium to Friday's closing price of $26.12 per share. It says it intends to make "value creating acquisitions of additional theatre leases, as well as investments to enhance the consumer appeal of AMC's existing theatres." It may also reduce debt with the money. 

The elevated price might not be the $500,000-per-share moonshot Reddit traders are hoping for, but it suggests AMC sees continued growth in its future.

A father and son sit at a movie theater and share popcorn.

Image source: Getty Images.

Tomorrow's an important day for AMC stock. It is the date when shareholders of record are set, and that determines who will be able to vote at the upcoming shareholders meeting in July.

Internet chat rooms believe hedge funds are engaged in an extensive level of naked shorting of AMC stock. That's the illegal practice of shorting a stock without actually first borrowing the shares in a bid to drive down the price. The traders say the June 2 record date for stock ownership will expose the naked shorts and lead to the mother of all short squeezes, or MOASS.

AMC's sale of stock to Mudrick at an elevated price doesn't mean it's buying into this theory, though it does indicate it and the hedge fund see greater value for the stock in the future. It also could eventually initiate a squeeze, as higher prices could force short-sellers to cover their positions. 

Already the theater owner's shares are racing higher in premarket trading, even if it's not yet the stratospheric reaction some retail investors seek.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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