Movie theater company AMC Entertainment Holdings' unusual step in inviting loyalty customers to buy shares for its IPO alongside Wall Street investors may not pay off for movie-theater goers, but it will pay off for the soon-to-be public company.
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In a letter, president and CEO of AMC Theaters Gerry Lopez, said the company is reserving a number of shares in its initial public offering for Stubs members on a first-come, first-serve basis.
While some companies may offer shares to friends and family for their IPOs, Santosh Rao, senior analyst and head of research for Greencrest Capital, said it was unusual for companies to offer customers the offering price that AMC employees will receive.
"We will also give you the same 24-hour head start our employees will receive, in order to ensure you have the earliest opportunity to reserve shares at the offering price," Lopez wrote in his letter addressed to Stubs members that was filed with the SEC last week. "While many companies depend on their customers' support every day, those customers don't always get the chance to own a piece of the action at the same price as Wall Street investors. We're offering this exclusive employee benefit to our AMC Stubs members to express our sincere gratitude for your loyalty."
AMC Stubs members pay $12 a year for free upgrades on concessions, and waived online ticket purchase fees, among other benefits.
In a similar letter to employees, Lopez made the same offer to AMC associates, saying the price per share will be determined by negotiations between the company and the underwriters of the IPO, "but it will be the same price per share as offered to Wall Street investors."
AMC is selling over 18 million shares with an expected IPO price between $18 and $20 a share. The company reserved more than 110,000 shares for Stubs members and over 230,000 shares for employees. The company is expected to go public next month.
AMC employees and Stubs members who want to purchase from $100 to $2,500 of stock, and sell stock, with no fees, can do so through the LOYAL3 Social IPO platform, a company based in San Francisco.
Last year, the Chinese conglomerate Dalian Wanda Group Co., which calls itself the world's largest cinema chain operator, bought the former privately-held AMC Entertainment for $2.6 billion.
Rao said the offer to AMC loyalty customers was surprising because companies often prefer institutional investors who will hold the stock for a longer amount of period.
"They're not in for a quick in-and-out. Companies like a stable shareholder base over those momentum guys who flip the stock the first day," Rao said.
Many companies require early investors to hold stock for a period of time after a firm goes public.
AMC Entertainment did not respond to a request for comment.
Chris Malone, managing partner of consulting firm Fidelum Partners, said it's unusual not just to reserve IPO shares for customers but also for frontline employees.
"Without knowing the particulars of the prospectus or whether shares of AMC would be a good financial investment, this appears to be a very worthwhile investment in customer and employee relationships by AMC," said Malone, co-author of the book, "The Human Brand: How We Relate to People, Products, and Companies."
"Even if customers and employees choose not to participate, it's a gesture of goodwill and an effort to align their interests with those of shareholders, which are often at odds with one another," Malone said.
Malone said companies benefit when they keep the best interests of customers, employees and shareholders in balance with one another.
"Doing so reduces the cost of attracting and retaining customers and employees, which benefits shareholders handsomely over the long-term. So on its face, this offering by AMC Entertainment would seem to be a step that direction," he said.
Offering his general advice about IPOs, Rao cautioned non-professional investors against jumping into an IPO just because you have the money or opportunity to do so. Rao said he was also skeptical about the future business prospects of movie theaters in general, with the surge in online movie viewing and home entertainment.
"It's like a pricing game," Rao said, as opposed to a business decision based on a company's fundamentals. "People buy in early and cash out. By the time it hits the market, there's not much left -- unless you're a long term investor and you buy and hold it. If you're looking for a quick pop in an IPO, not many people get that advantage," he said.