See, unlike the more conventional process of a buying a stock at a lower price and then selling it at a higher price in the future, short sellers sell a stock at a higher price now with plans to buy it back, or "cover," at a lower price later. That buying effort is supplied by that stock's short sellers in an effort to quickly close out a trade that's losing money. If you're not familiar with the term, a short squeeze is a way of artificially inducing the buying of a stock that drives its price upward. The capital raisings that the retail investor interest has facilitated highlights the unusual dynamic at play in AMC.But, first things first. It’s also enabled board members and some senior executives to raise $US8 million for their personal accounts by selling shares at prices that were inconceivable six months ago. It isn’t surprising that the company has welcomed the new shape of its register because those retail investors, by driving up the share price, have helped the company raise equity that would not have otherwise been available to a company as indebted, as loss-making and haemorrhaging cash as heavily as AMC.
#When will amc squeeze free
It warned potential investors that its current share prices reflected “market and trading dynamics” unrelated to its underlying business or industry fundamentals and cautioned them against investing in its shares unless they were prepared to incur the risk of losing all, or a substantial proportion, of their investment.ĪMC has embraced its new shareholder base, communicating with them via the chatrooms and promising them free popcorn, exclusive screenings and “other benefits.” Mudrick immediately dumped the stock into the market and walked away with a profit, telling its own investors AMC shares were overvalued.
Last Tuesday they placed $US230 million of stock with Mudrick Capital, a distressed debt and “event-driven” investor. Last month AMC’s controlling shareholder, China’s Dalian Wanda, claimed it had doubled its original investment when it sold almost all its AMC shareholding at $US14 a share, cashing out $US1.5 billion.ĪMC’s board and management have also recognised the unique opportunity presented by a horde of investors unconcerned about the company’s fundamentals and the uncertainty over the future of theatres in a post-pandemic, streaming world. AMC’s debt was reduced significantly by the transaction and Silver Lake made a tidy profit from an investment that looked doomed late last year.
So has Wall Street.Īs the retail shareholder invasion of the register got underway, a private equity firm, Silver Lake Investment Partners, switched a $US600 million convertible bond position into equity and sold that stake for $US713 million.
They’ve embraced them and taken advantage of them. The key factor that differentiates AMC from GameStop, however, isn’t to do with the short sellers (although it might impact them) but with the way AMC’s management has responded to the Reddit crowd’s invasion of their register. There’s also enormous liquidity in the market for AMC shares – last week nearly 800 million shares changed hands in a single day – which ought to enable short sellers to cover their positions if they want to close them out. They might have a tight squeeze on the short-sellers but, equally, they have to keep buying AMC shares and at least maintain, indefinitely, a price that even AMC believes is unsupported by any fundamentals to avoid a crash that would wipe them out. While there might some naked shorts, the disclosed short position appears to have hovered around 20 per cent of AMC’s capital, or just below.
The short-sellers in AMC have nothing like the positions hedge funds held in GameStop. It’s illegal in most jurisdictions, including the US, albeit difficult to police. In a “naked” short sale, the shares aren’t borrowed (to avoid the fee), which is akin to increasing the company’s capital base without the company or its shareholders knowing or approving the increase.
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