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Amazon buying AMC isn’t as crazy as you think

Red leather cinema seats
Image source: AMC Entertainment

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Shares of AMC Entertainment Holdings (NYSE: AMC) moved higher on Thursday morning on chatter that Amazon.com, Inc (NASDAQ: AMZN) could emerge as a potential suitor. Right now, it's just little more than collective wishful thinking from the AMC bull camp. 

There are no credible media outlets with sources claiming that talks between the two parties are happening. However, there were reports last year that Amazon and AMC were in preliminary negotiations before talks broke down. There were also more substantiated reports of Amazon in the running to acquire the smaller Landmark Theatres in 2018, but that also faded to black. 

There are some very good reasons why this won't happen. There are some very good reasons why this might. Let's break down both arguments. 

Amazon shouldn't buy AMC

Let's get the bearish argument out of the way first. We can start with the price. AMC had an enterprise value of $10.6 billion in May of last year when the last story was making the rounds. AMC's fundamentals have only gotten worse, but its enterprise value has ballooned up to $13 billion – and likely closer to $15 billion by the time all of the latest stock sales and debt moves are on the books. If the price was an issue for Amazon before, it would make even less sense to pursue a transaction now.

AMC has lost leverage with Hollywood over the past year. Movie studios are dictating the terms of release windows, and folks haven't been flocking back to the local multiplex since it reopened late last summer. 

There's also an argument to be made that Amazon doesn't need AMC if it wants some skin in this game. It can have AMC rival Regal and its presently shuttered multiplexes for what is likely pennies on the AMC dollar. Amazon considering the purchase of the 53-unit Landmark three years ago suggests that it's not just gunning for the largest player here. 

There's also the risk here that Amazon stock takes a hit on an AMC purchase. The market was also confused by the $13.7 billion Whole Foods purchase, but at least that was a top dog in a growing niche. Whole Foods is aspirational. AMC is, well, AMC. 

Amazon should buy AMC

As crazy as it sounds, there are also some reasons why the pairing of Amazon and AMC makes sense. In supporting Amazon's pursuit of Landmark three years ago, I came up with five reasons why Amazon can win if it was successful in its purchase: 

  • Street cred in Hollywood
  • Prime Video retention and attraction
  • Beating MoviePass and AMC in the subscription game
  • A new take on the concessions stand
  • Research

There's still some mining to be done in all five of those areas. Owning the country's largest multiplex operator would give Amazon a leg up on other streaming platforms when it comes to distribution. Studios would move Amazon higher up on the list of potential partners. If anyone could crack the subscription model beyond AMC Stubs A-List and the now-defunct MoviePass platform, it has to be Amazon. 

When it comes to the concessions counter, it's hard to think of anyone better than Amazon to disrupt pricing on overpriced snacks but – more importantly – to also flesh out its kiosks with relevant merchandise and likely an upgrade in automated service technology. The final point about research may seem to matter less these days, with audiences unlikely to return to peak levels, but Amazon would be able to use the data it can collect from its moviegoers far more effectively. 

Amazon would also be able to improve in-theatre marketing. It also can reinvent programming with its breadth of multimedia connections. AMC in Amazon's hands would be misunderstood by Wall Street at first, but you don't bet against Amazon when it gets its hands on a new toy – or in this case, a 100-year-old toy that just needs to be wound in a new way. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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This article represents the opinion of the writer, who may disagree with the "official" recommendation position of a Motley Fool premium advisory service. We're motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer. 

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool Australia has recommended Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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