NEW YORK — Showbiz stocks both big and small were savaged Tuesday as the stock market slump accelerated, with the Dow Jones Industrial Average dropping 299.43 points or 3.4% to 8487.31.
Major entertainment stocks like Time Warner and Viacom have fallen sharply from their high points of early July, but the showbiz sector worst affected is exhibition, which is caught up in a much more severe sell-off afflicting small companies.
That’s been particularly bad news for AMC Entertainment, which has been marketing a stock offering it has to complete by Aug. 15, and Loews Cineplex Entertainment, which completed a stock offering late last week at a price well below what it had hoped to get.
Amid Tuesday’s market rout, Time Warner plummeted $3.87 to $85.37 (14% below its high of three weeks ago), while Viacom fell $2 to $65.25. Viacom had hit a high of $70 just a few days ago.
Walt Disney fell $1.87 to $32.81, equivalent to $98.43 at the pre-split level. News Corp., which a few weeks ago was trading around $33, dropped 43¢ to $28.37 Tuesday.
Traders said Tuesday’s market drop was prompted by lower-than-expected economic statistics and worries about quarterly earnings although jitters tend to compound in a market as volatile as this one. The Dow has now fallen 9% from its high point of 9367.84 set less than three weeks ago.
“Good old-fashioned panic is what we are seeing here,” said Sal Muoio, principal of SM Investors money managers.
Small capitalization stocks have been suffering from a sell off for the past three months, however. Muoio pointed out that the Russell 2000 Index of smaller stocks is down 18.2% from its high reached in April, although the bulk of that has come in the past two weeks.
Exhib stocks fall squarely into the small-cap group, several analysts said.
Among the exhibs, AMC fell 56¢ to $15.93 Tuesday, its lowest point in the past year, while Loews dropped 12¢ to $10.50. Loews stock was trading at $20 a few months ago, while AMC stock is down 45% on its high for the year.
The market plunge could not have come at a worse time for AMC chairman Stan Durwood, whose family is selling part of its stockholding in the exhib as part of a settlement of a shareholder lawsuit and to help resolve a family dispute about the division of the stock between the Durwood children.
The agreement on the $50 million stock offering requires it be completed by Aug. 15, although it is ex-pected to be priced today or tomorrow. AMC had planned the offering for earlier in the summer but delayed it in late June, apparently hoping investor attitudes toward exhibs would improve.
Instead market conditions have become ugly, prompting many companies on Wall Street to postpone offerings. AMC cannot, however, and it is being caught in an unusual squeeze.
Traders who specialize in “shorting” stocks (selling stocks not yet owned and buying back later in the hope the price falls) have focused on AMC, Wall Street sources said, in the knowledge that the offering has to go ahead no matter what.
That has helped pull down AMC’s stock price 20% in the past few weeks. Making matters worse, Durwood is required to compensate his children if the stock offering is priced below $18 a share — as seems likely now.
The family is selling 3.3 million shares, most of which are coming from common stock held by each of Durwood’s six children although the 77-year-old chairman is selling 500,000 shares himself. He will retain enough supervoting stock to have 70.3% of the votes, AMC’s prospectus says, while the children will have 31.5% of the stock with 9.3% of the votes afterwards.
Kids get difference
Durwood has agreed to pay his children the difference between the sale price and $18 for 2.5 million shares, up to a total of $20 million, by giving his children more of his stockholding. At the current price, Durwood would have to pay $5.1 million.
At the same time AMC and Loews Cineplex, which priced a $100 million stock offering July 31, have both been affected by unfavorable sentiment toward exhib stocks based on the view among investors that the screen-building frenzy will increase competition and hurt exhib earnings for the next couple of years.
Several analysts said investors were positive about Loews over the longer term, but the short term industry uncertainty and the rough market hurt the offering. Loews sold 10 million shares at $11 a share, whereas Loews stock was trading around $14 when the offering was announced in mid-June.
Loews got a better reception in the bond market, where a concurrent bond offering was increased by $100 million to $300 million.
“We were very well received by the debt market,” said a spokeswoman for Loews Cineplex. “On the equity side we tried to increase the liquidity and float of the stock and bring institutional investors (into the stock), and we achieved that,” she added, conceding that the price was below the company’s view of its true value.
AMC execs were in Gotham Tuesday for a roadshow presentation on the offering and could not be reached for comment.