Rumored Amazon acquisition of AMC is ‘probably not happening anytime soon’: Analyst

Wedbush Managing Director in Equity Research Michael Pachter to discuss rumors of a possible acquisition of AMC by Amazon.

Video transcript

- A Substack a post speculating Amazon could buy AMC sent shares of the movie theater chain soaring yesterday, closing off just about 3% today. But a new research note out from Wedbush telling investors that they don't see the acquisition as likely. Joining us now is one of the authors behind that note, Michael Pachter of Wedbush, managing director of equity research. Michael, it's great to see you again. So you're saying that this deal, this potential deal, is unlikely. Why doesn't it make sense?

MICHAEL PACHTER: Yes, Seana. I'm wearing my Lululemon shorts, by the way.

- Oh, there we go.

MICHAEL PACHTER: I don't cover them. But my last several Christmas and birthday and Father's Day presents have been Lululemon. So it's a great brand for men. Look, you really have to think about whether they are a willing seller-- I think not-- and whether there are any rational buyers out there. Amazon has behaved irrationally in the past, but never making big multibillion dollar mistakes. The biggest acquisition they ever made was Whole Foods. And that was a $4 or $5 billion revenue company that was profitable. And Amazon strategically needed it to get into home grocery delivery.

This doesn't make sense. I mean, AMC is currently valued at around $800,000 per screen if you look at their enterprise value. And the going rate in the industry pre-pandemic was about $250,000 per screen. So if Amazon just wants to buy screens, conveniently, Cineworld has given up its sale process. And they're going to go into liquidation. They have about 10,000 screens for sale.

My guess is Amazon can buy those for $200,000 apiece. So the whole chain may be $2 billion. Far more likely they buy 10%, 1,000 screens, get whatever they need strategically to make creative talent feel good that their movies produced for Amazon will get theatrical exhibition, and save the extra seven or $8 billion and put that into something equally stupid like Amazon Go stores. But they're not going to buy AMC theaters and turn them into convenience stores. You may have noticed that movie theaters have no windows and not very many doors. So probably not happening anytime soon.

- Good to see you, sir. So the article report referenced these theaters as marketing way stations. Does that make sense-- taking out your breakdown, does that make sense as a concept for Amazon? And you mentioned Cineworld. I was wondering why that stock was popping earlier. Up about 10%. So, clearly, investors think there might be some smoke where there's-- or fire where there's smoke there. Could that be a purchase?

MICHAEL PACHTER: No. I mean, the fact is that it's much easier to buy assets from creditors in liquidation than it is to take over the whole company and then guarantee the debt. There's no point in Amazon buying a company that has debt. They can just buy the assets from the creditors. If Cineworld fails in its process-- and it looks like they're about to announce that-- then the assets just go to the creditors.

These big boxes have no value as marketing way stations. The person who said that is an idiot. So I'm sorry. Am I allowed to say that?

- Yeah. You just did.

MICHAEL PACHTER: Just a complete idiot. People hardly go to them as it is. But if they do, Amazon can market to your cell phone. They don't need you to go to a theater to realize that Amazon is out there. The assets don't have any value beyond as movie theaters. They're special purpose construction mostly in malls. The mall operators want them as a traffic driver. You can't convert that into a Dressbarn. You just can't do it.

So, no, I don't see any reason Amazon would ever buyout Cineworld. But the pop is because people read these posts and think that there's some actual credibility behind them. This is an idiotic concept. I would downgrade Amazon if they did something as stupid as buy AMC for full value and take on the debt. That shows that Andy Jassy is completely out to lunch and has no idea what he's doing.

- So fair to say that you are not supportive if this deal were to ever be reached.

MICHAEL PACHTER: I'm not supportive. But I love Lululemon.

- There you go. You love Lululemon, hate the idea of Amazon buying AMC. Michael, what about AMC just being a potential takeover target in general, putting Amazon aside here. Would that makes sense for anybody at this point?

MICHAEL PACHTER: Yeah. Again, I did M&A for the better part of 15 years. I literally have done over 200 deals. I used to be a banker. And for a deal to get done, you have to have a matching of expectations. You have to have a buyer who wants the asset and a seller who thinks the price is fair. Sure, AMC's a seller at some price. But who's the buyer? And the fact is it's a declining business so there's not really that much opportunity for a financial buyer.

The going concern value is $800,000 per screen. And I'm confident that someone could buy Cineworld for $2 billion instead of buying AMC for $8. So why pay $8 when you get the same, essentially, same assets for $2? So no. If there is a buyer, they're going to pounce on Cineworld. Cineworld has been in bankruptcy for a while. And they've been looking for a buyer and haven't found one. So if they can't find one, why is Amazon suddenly far more interested in AMC?

And just as a reminder, Cineworld owns Regal Cinemas. So they're just about as big as AMC in the US. And they're bigger in Europe. So it just makes no sense whatsoever that someone would buy AMC and take over their debt instead of buying Cineworld out of bankruptcy.

- Amazon, though, did spend, or is committed to spending, a billion dollars a year on north of 12 movies, full features, at the theater. They bought MGM. $8 and 1/2 billion. What's the investor-- is that a catalyst at all for the stock? Could they spin off an entertainment side of Amazon at some point?

MICHAEL PACHTER: I doubt that they would. If Amazon were inclined to spin off anything, it would be AWS because that has standalone value. I mean, that's a really valuable business that you could separate from Amazon core. No reason to be out there buying entertainment assets solely to spin them off later. And remember, the MGM deal got these guys Epix, which they just rebranded MGM+. So it got them a subscription streaming service.

That's a great vehicle for them to actually, if they create movies, charge for content, charge subscribers, and put some stuff on MGM+, some stuff on Prime Video, and some stuff on Freevee, which is ad supported. So I think they have a multi-pronged approach to exhibition of film. And you said a dozen for a billion dollars, which is probably not the right number. That's $80 million per film. That's not big blockbuster-type movies. That's more Ben Affleck, J.Lo kind of movies. So romantic comedies for $80 million. You're not going to make "Avatar" for $80 million or a Marvel film for $80 million.

- I will be first in line for Ben Affleck and Matt Damon when "Air" comes out, though, next week. Michael, good to see you. We really encourage you to--

MICHAEL PACHTER: Thank you.

- --be honest with us next time. Really get it out there, my friend.

MICHAEL PACHTER: Lululemon.

- You're so reserved. All right.