Did Mudrick Capital rush into selling AMC shares?

Summary

  • Meme stock, AMC Entertainment Holdings is once again in news as company raises US$230 million.
  • Mudrick Capital Management, L.P. flips shares post the private placement.
  • Is long-term investing a passe?

On Tuesday, AMC Entertainment Holdings, Inc. (NYSE:AMC) said that it had entered into an agreement to raise US$230.5 million of cash from the sale of equity to Mudrick Capital Management, L.P., in exchange for 8.5 million shares of AMC’s Class A Common stock, raising US$230.5 million.

The equity was raised at a price of approximately US$27.12 per share.

However, on the same day, Mudrick Capital sold its entire AMC stake – 8.5 million shares – making a neat profit.

Read: New ‘meme stock’? AMC Entertainment’s shares surge

In the best-case scenario, the sale would have fetched Mudrick Capital a sum of US$285 million. In normal circumstances, the 23.6% return that the fund house generated in a day, would have been mind-boggling.

Meme stocks, Image Source: © Michaelvi | Megapixl.com

However, in this case and in hindsight, it would have been better to hold on to the stock for at least a day, given that AMC shares racked up wild gains on Wednesday, bolstered by Reddit-fuelled frenzy.

The shares of AMC closed at US$62.55 each in New York overnight, 95.22% higher than US$32.04 a day ago. In the intraday trade, the shares surged as much as 126.65%, as trading had to be halted multiple times.

Read: Why AMC shares doubled in one session

Had Mudrick Capital held on for one more day, even in the worst-case scenario, it would have earned them at least US$18 million more. In the best-case scenario, the share sale would have fetched them three-times more gains. The company would have notched up returns worth US$617 million – US$300 million more than what it made in a best-case scenario on Tuesday.

Is the investment time horizon getting shorter by the day? A question worth pondering.

Comment


Disclaimer