The stockmarket needs more unlikely deals like AMC's mining punt

AMC’s investment in a gold miner is hard to justify, but companies should be a bit bolder, says Matthew Lynn

It was a plot twist to rival any on its thousands of screens. The cinema chain AMC, which owns the Odeon brand in the UK, last week announced that it was spending $28m on a major stake in Hycroft Mining, a precious metals explorer that may be sitting on big potential reserves of gold and silver in Nevada. It was one of the oddest corporate acquisitions in many years, and to say the market didn’t exactly cheer the move would be an understatement. The deal is “embarrassingly stupid”, according to one analyst. “Taking valuable cash and investing it into a high-risk business outside of its core competency,” argued Eric Handler, media and entertainment analyst at MKM Partners. “I don’t get it.”

Adam Aron, AMC’s chief executive, justified it as “a bold diversification move”, which is putting it mildly. Whether Hycroft actually manages to find any gold under the ground remains to be seen, but heck, if it strikes a rich stream maybe AMC could even reduce the price of the popcorn at its cinemas – the only thing in the world that costs more per ounce.

Big success from left-field bets

Of course, it’s just possible that AMC is on to something. Over the years, companies have occasionally done very well by taking completely left-field bets on very different industries. The largely forgotten Racal dabbled in mobile telecoms in the late 1980s, creating the business that eventually turned into Vodafone. Getty Oil bought the sports network ESPN in 1979 and it went on to become one of the largest sports broadcasters in the world, while the oil company has long since disappeared. Granada, originally a cinema chain and part of the ITV network, expanded into motorway service stations in the 1960s creating the company that is today Moto. These diversifications may have seemed completely batty at the time they were announced, and yet they ended up making a lot of money for shareholders. Maybe today’s companies, under pressure from investors, are thinking too narrowly.

Fund managers hate conglomerates of any sort and prefer to invest in companies that are very focused on a specific industry. And in fairness, they have a point. After all, if a shareholder in the AMC cinema chain also happens to feel like taking a punt on a gold miner, then they can do so any time they want to. They don’t need the boss of AMC doing it for them. 

That said, there may also be advantages. Yes, a group of managers who have managed to run a cinema chain aren’t necessarily well-placed to make a success of a gold mine. But an established, major company may well be able to professionalise the management of a much smaller one. Experienced executives may be able to spot opportunities in the market that have eluded other investors. And they may have networks, or skills, that can be transferred from one industry to another. 

Five wild ideas for the FTSE 100

If you think about it, there are lots of left-field acquisitions some of the leading members of the FTSE 100 could make if they were brave enough. Tobacco firm BAT could buy an oil exploration business. It couldn’t be any more unpopular than it already is, and anyone who wants to invest in destroying the world could do so with the click of a single button. Sky could forget about competing with Netflix for a week or two and buy a pub chain. It would be serving many of the same customers, and could make sure they all show the football all the time. Tesco could buy a broadcasting company, and perhaps slip in some quiet product placement to help boost its sales.

Maybe GlaxoSmithKline could buy a theme park or two. It could hardly be any worse than the performance of its drugs business over the last decade, and it might even be able to sell a few more sedatives to stressed parents. Heck, perhaps Unilever could buy a church or set up its own. At least investors would no longer be able to complain that it was preaching too much, or spending too much time on do-goodery instead of making money. 

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