Members of movie chain AMC Entertainment’s “Stubs” loyalty program are used to getting offers for free popcorn and sodas, but earlier this month they got a very different kind of proposal from AMC.
The company, which is going public next week, sent a letter to Stubs members asking if they wanted to buy shares at the IPO price – a perk usually reserved for Wall Street heavy hitters and hedge funds. Members were directed to Loyal3, a relatively new brokerage firm, where they could place an order to buy up to $2,500 worth of shares with no fees or commissions.
AMC is expected to price 18.4 million new shares at $18 to $20 each on Dec. 17. In most deals this year, buying in at the IPO price has been a winning strategy. The average IPO jumped 17% on its first day of trading and gained 32% overall, according to data from Renaissance Capital. Investors who got in at the IPO price collected the entire gains, while investors who could buy shares only after trading began got less.
But the history of appeals to customers of companies going public has a troubled record. In 2006 Internet telephone service Vonage (VG) was the last major IPO to push for customer participation and the deal was unmitigated disaster. After pricing at $17, Vonage shares dropped 24% the first day and went down from there, trading at less than $4 today. AT&T Wireles (T) also sought to place shares with customers in its 2000 debut with lackluster results.
Loyal3 has created a platform for customers of public companies to buy and sell shares for free but it’s largely untested for IPOs. Instead of charging fees on investors, the broker charges the companies whose shares it trades. Companies may benefit from gaining a loyal base of shareholders who are already fans of their brands. AMC is the only IPO listed on Loyal3's website. (Loyal3 declined to comment for this story).
The final unknown is AMC’s future prospects. Movie goers seem increasingly likely to stay home and watch films on their “Ultra High Definition” TVs, or just skip movies altogether and watch YouTube clips. Attendance for AMC was up just 1% to 149 million in the first nine months of this year compared to the same period in 2012. Industry-wide, attendance this year is down 5% to an annualized rate of 1.3 billion, according to Nash Information Services.
AMC is spending heavily – more than $200 million a year – to build fancy theaters with plush, reclining seats, 3-D projectors and IMAX screens. Already, the appeal of 3-D movies, with their higher ticket prices, appears to have declined. The same could happen at AMC’s fancy seat theaters where tickets can cost $28 a person.
And, oddly, while AMC saw fit to disclose movie attendance results for comparable periods in 2013 and 2012, its financial results are obscured by a bizarre slicing and dicing. AMC broke its financial results up into a series of different dates that can’t be easily compared. With that caveat, it does appear that the business is healthy, with revenue of $2 billion in the first nine months of 2013 and net income of $85 million. AMC plans to use proceeds of up to $370 million from the IPO to pay down its $2 billion of debt, a time-tested strategy of companies going public after a leveraged buyout.
Loyal3’s platform buys and sells all shares in one batch just once per day at a single price, so it’s certainly not a platform for day traders or those wanting to flip IPO shares to make a quick profit. AMC IPO buyers could seek to sell their shares after the first day of trading, but unlike selling through a traditional broker, they won't know the price for certain until Loyal3 completes its batch of sales at the end of that day.
For those with faith in AMC’s plans and the enduring appeal of munching popcorn in plush seats before a big screen, there may be a deal to be had.
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