The Future of Theaters

It has been a while since we've heard an Amazon.com takeover rumor. But today investors spent the day chewing on a new report from the U.K.'s Daily Mail that the e-commerce giant was "thought to have held talks about a potential takeover" of AMC Entertainment, the U.S. movie theater operator. The Covid-19 shutdown hasn't been an easy time for AMC, which has temporarily closed all of its 1,006 theaters -- and more than 11,000 screens -- across the country. Heading into trading today, the stock had fallen 47% since mid-February. 

But on Monday the buyout rumor caused AMC shares to soar as much as 56%. They closed the day up 30%, to $5.32 -- never mind that another report from Hollywood news site Deadline reported that no talks were ongoing. Amazon and AMC both declined to comment.

Deal or no deal, AMC's big day is a good reason to think about the future of movie theaters and Amazon's next deal. 

Almost three years ago, Amazon stepped out of its comfort zone to buy Whole Foods Market for $13.7 billion. That deal hasn't exactly hurt Amazon. Its stock is up 150% since then, versus a 20% return for the S&P 500. Amazon used Whole Foods to extend its retail operations, from e-commerce into bricks and mortar. With AMC, Amazon could potentially expand its Prime Video digital streaming into physical screenings. It's not a huge leap given the Whole Foods success, and the deal would be a rounding error for Amazon. At today's close, debt-laden AMC has an enterprise value of $4.8 billion. Amazon is worth $1.2 trillion. 

Of course, movie theaters were having a tough time even before coronavirus, and there's no guarantee that consumers will rush back when they eventually re-open. At-home streaming from Amazon and Netflix, as well as film-giant Walt Disney, is changing the equation for theaters. Whole Foods was also struggling when Amazon made that deal, but nobody thought groceries were going out of style. 

Shares of AMC may have gotten a separate boost Monday after comments from Disney's new CEO, Bob Chapek, who was asked by CNBC if the company would favor its new Disney Plus streaming service over theaters. Here's Chapek's response:

We believe in the theatrical experience, particularly to launch big blockbuster franchise films. It fuels the entire Disney company, from consumer products to theme parks all the way to Disney Plus. So we really think that’s the smart way to launch our big tentpole films. 

Disney could actually be a potential acquirer of AMC, Chris Mittleman, the chief investment officer of Mittleman Brothers, a large AMC shareholder, told Barron's Eric Savitz on Monday:

Mittleman thinks a deal to buy AMC could benefit Walt Disney, Netflix, or Amazon. Imagine going down to your neighborhood Disney theater to see the new Star Wars movie, or the Netflix multiplex to watch the next Martin Scorsese movie. Mittleman thinks an AMC acquisition could be immediately accretive for any of those potential buyers, but that the branding and marketing opportunities also would be considerable.

Buying the stock—or buying the whole company—would be a bet that at some point, the world will reopen, and that “people will do what they’ve always like to do as soon as they feel remotely safe doing so,” Mittleman said.

Here's more from Eric's story.