More investors than ever have gravitated to the stock market, as the rise of meme stocks like AMC Entertainment Holdings (AMC) has driven a lot of interest from ordinary people without much experience in investing. That has changed the investment landscape over the past couple of years, and it's provided a welcome diversion from the ups and downs of the broader market. That turbulence was a bit calmer on Tuesday morning, as investors continued to digest all the things happening across the globe. As of 8:30 a.m. ET, futures on the Dow Jones Industrial Average (^DJI -0.98%) were up 71 points to 33,015. S&P 500 (^GSPC -0.46%) futures had gained 13 points to 4,185, while Nasdaq Composite (^IXIC -0.64%) futures had risen 76 points to 13,122.
Companies often have to make smart strategic moves in order to survive tough times. Yet the big question with a bold announcement is whether a move is truly smart. AMC definitely made an interesting decision Tuesday morning, but the jury's still out as to whether it'll prove to be a good one.
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AMC goes for the gold
AMC Entertainment Holdings' latest strategic play rewrote the script on the movie theater operator's historic focus. The company decided to make a foray far afield of its traditional business, and it brought in an industry expert to play a co-starring role in the move.
AMC will invest $27.9 million in order to take an interest in Hycroft Mining Holding. The company is a tiny gold and silver miner that owns a mine in northern Nevada.
Hycroft, which came public through a merger with special purpose acquisition company Mudrick Capital Acquisition in mid-2020, had seen its stock plunge from the SPAC's $10 per share price to less than $0.30 per share as recently as last month.
However, the release of an initial assessment for the project led to a surge in the penny stock. It also apparently attracted the attention of AMC and precious metals investing specialist Eric Sprott, who agreed to join the movie theater company with his own $27.9 million investment.
Under the terms of the deal, AMC will get 23.4 million equity units, which combine a single share of Hycroft stock with a warrant to purchase an additional Hycroft share at a price of $1.068 anytime within five years after the agreement closes. That works out to a 22% interest in the miner. The parties expect to get the deal done by later today.
Why did AMC do it?
It's hard to think of a business that has seen more challenges than AMC. Even before the COVID-19 pandemic, theater attendance was under threat from streaming video and the popularity of home theater systems. Lockdowns forced closures that jeopardized AMC's existence.
Yet now, AMC CEO Adam Aron is convinced that the movie theater business is back on track. The executive pointed to the success of the latest Spider-Man and Batman movies along with a return to a normal schedule of summer blockbusters as evidence that AMC will recover fully.
Aron tried to rally support for his move by comparing Hycroft to AMC, pointing to its beaten-down share price and lack of liquidity. Yet with early studies pointing to immense gold and silver resources, Aron thinks that AMC can help Hycroft through its own challenges with the lessons that the movie theater operator has learned through its battle.
AMC investors seem to be OK with the move, as the stock rose 4% in premarket trading. Despite all the hype, AMC is making a tiny investment, and regardless of whether it goes well, it's unlikely to have a material impact on the theater operator's long-term prospects.
