Will AMC Entertainment rescue the Cineworld share price?

At Cineworld Group (LSE: CINE) share price has been one of the worst performers on the London market in the past year. Indeed, the stock fell so much in 2022 that this once-great business is now worth just £50.8m. But can the white knight save Cineworld?

Covid kills Cineworld share price

On 18 April 2019 – less than four years ago – Cineworld shares hit a record high, closing at 319.6p. But less than 12 months later, Covid-19 went global, sending the stock market crashing. With lockdowns and social restrictions, British cinemas spent much of 2020-21 completely closed. This caused Cineworld to experience great tension, causing its shares to plummet.

On 16 October 2020, the stock fell to close below 25p. But then came ‘Vaccine Monday’ (November 9, 2020), with news of a highly effective coronavirus vaccine. Cineworld shares soared, closing at 122p on March 19, 2021. Unfortunately, it has all come down to Cineworld shareholders.

Why hasn’t CINE reached zero?

At a 52-week high, Cineworld shares hit 45p. As I write, it hovers around 3.73p – still more than double the 52-week low of 1.8p on 19 August 2022. But with the company facing an existential crisis, why aren’t these shares trading at or near 0p?

One reason is that Cineworld’s stock traders are playing a game – maybe Chicken, Hot Potato or Parcel Pass? The idea is to buy these bombed stocks for cash, hoping to sell them at a higher price if the stock goes up. This is known as the ‘Great Fool Theory’ – and it almost always ends badly.

Could AMC Entertainment buy Cineworld?

The latest news is that Cineworld – which has been in US Chapter 11 bankruptcy proceedings since early September – will sell its entire estate. One party interested in this fire sale is its larger US rival AMC Entertainment Holdings. (At $2.2bn, AMC’s market capitalization is about 43 times that of the shrinking Cineworld.)

One big hurdle is that Cineworld has about $5.2bn (£4.3bn) in debt by mid-2022. This is equivalent to about 85 times its current market cap. To me, this shows that Cineworld is just a big (and problematic) bank loan with a small (and loss-making) operating business.

With the official sales process due to start this month, there is can just be some hidden value lurking inside Cineworld. Then again, with bonds and loans collapsing, it’s unlikely that shareholders will get anything from a company in crisis. Indeed, the group warned today that there “does not guarantee any recovery” for the shareholders.

Also, with AMC Entertainment facing lower moviegoers, it may struggle to raise new capital to buy some or all of Cineworld. And even though there are fanatical fans of meme shares (known as ‘Unfortunate’).

In summary, I wouldn’t approach Cineworld with the proverbial bargepole. To me, they trade on hope and thin air. Furthermore, I don’t expect anyone to ride in to save the company before it collapses into insolvency, but I could be wrong!