A hedge fund bought 8.5 million shares of AMC Entertainment Holdings on Tuesday, only to quickly sell its stake in the world's largest...
A hedge fund bought 8.5 million shares of AMC Entertainment Holdings on Tuesday, only to quickly sell its stake in the world's largest cinema chain at a $25 million profit, as Wall Street giants move in to the 'meme stock' market.
The move by Mudrick Capital Management to flip 8.5 million shares of the movie theater chain immediately after buying them in a private placement from the company is unusual, and significant.
It shows how Wall Street is getting bolder about making a quick buck off a trading frenzy that has helped fuel big rallies in several stocks favored by small-scale, 'retail investors'.
AMC said earlier Tuesday it issued 8.5 million shares to Mudrick, the chain's latest share sale this year, as it cashes in on a big jump in its stock in 2021.
AMC, which operates the world's largest chain of movie theatres, on Tuesday issued 8.5 million shares to hedge fund Mudrick Capital Management. The hedge fund, which specializes in high-risk moves, then immediately sold the stock at a profit
Shares in AMC closed up 23 per cent, at $37.68 a share, on Tuesday after Mudrick's move
Mudrick has sold its AMC stake at a $25 million profit, believing the company's shares are overvalued, the source familiar with the matter said on Tuesday.
AMC has recently become a 'meme stock' promoted by users on Reddit page r/WallStreetBets, alongside game retailer GameStop.
In January GameStop stock soared 1,600 per cent in a feeding frenzy by small scale speculators - many using the Robinhood trading app - joining in the buying bonanza.
Small investors, urged on by the Reddit group, purchased the stock as a way to punish hedge funds that had bet massively against it.
But some small investors lost hundreds of thousands when they poured their savings into GameStop shares, only to see the bubble burst.
Tuesday's move was different though, as it involved a financial giant, rather than an individual trader.
Mudrick's Wikipedia page appeared to have been hacked on Tuesday evening - perhaps in retaliation for the AMC move.
The page said that the company, which manages approximately $3.8 billion, 'is an investment firm specializing in losing money.'
The page read: 'The firm is located in New York City and, as of June 2021, managed approximately $0.0 in assets. Due mostly, to bad decision making regarding AMC.'
Mudrick, founded in 2009 by Jason Mudrick, specializes in high-risk trades.
Jason Mudrick, founder and chief investment officer of Mudrick Capital Management, launched his firm in 2009. It currently has $3.8 billion under management, according to its website
The Wikipedia page of the company appeared to have been messed with on Tuesday - possibly by someone angered at their AMC trade
Easy money from the Federal Reserve has 'created an almost video game-like atmosphere in the stock market and investing,' said Michael O'Rourke, chief market strategist at Jones Trading.
He told Reuters: 'There's money flowing everywhere and this is a great illustration of that.'
AMC did not immediately respond to a request for comment on Mudrick's divestiture, reported earlier by Bloomberg News.
Sentiment around AMC was also supported by strong weekend box office collections in North America, led by John Krasinski's post-apocalyptic thriller 'A Quiet Place Part II,' one of the first major theatrical releases since last year.
The Memorial Day holiday is also expected to have boosted ticket sales as widespread vaccinations bring in more Americans to theaters.
Across the country, as vaccination rates increase, more people are going to the movies. Nationwide 72 per cent of theatres are open, Axios reported.
AMC said it would invest the proceeds in its existing theaters, which are set to benefit from a recovery in demand as more states lift COVID-19 restrictions on social gatherings.
'This can be a real way for AMC to grow again, creating immediate value for AMC shareholders,' Chief Executive Adam Aron wrote in a Twitter thread .
'This is not mindless dilution, but rather this is very smart raising of cash so that we can grow this company.'
AMC's stock closed up nearly 23 per cent at $37.68, leading a rally in other meme stocks.
AMC's stock is up more than 1,400 per cent so far this year in a meme stock rally that has picked up in recent weeks, including video game retailer GameStop and other favorites frequently discussed on Reddit's popular WallStreetBets forum.
GameStop shares, which rallied more than 1,600 per cent in January, closed up more than 12 per cent.
AMC has so far raised about $1.35 billion through share sales since December 2020.
Jason Mudrick founded London and New York-based Mudrick Capital in 2009 after leaving investment firm Contrarian Capital Management, where he had focused on distressed investing for eight years, according to the hedge fund's website.
Mudrick's firm specializes in long and short investments in distressed credit, its website said.
AMC have said that they are delighted at the soaring share price, and will use it to reinvest in facilities at their movie theatres across the country
Hedge funds like Mudrick will sometimes take down a share sale and quickly flip it as long as no lockup provision bars that for a specified period, said one U.S. based hedge fund.
'I don't know if it happens every day, but it's certainly a common practice.'
The share sale shows that AMC is 'obviously forward-leaning here and trying to be opportunistic,' said Mike Hickey, an analyst at The Benchmark Company.
'There's concern on dilution and there's concern on leverage but if you can raise money, you'd be a fool not to.'
However, it was too early to celebrate for AMC - despite Tuesday's rise in share price.
AMC is not expected to generate positive cash flow for at least the rest of the year. It narrowly avoided bankruptcy last year thanks to a $917 million cash injection.
And while the Memorial Day weekend set a pandemic record, it still brought in about half of the $230 million in box-office sales in 2019.
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