AMC Entertainment Holdings Inc.’s plan to convert its AMC Preferred Equity units to common stock was blocked Friday when a judge rejected a settlement that would have allowed the deal to proceed.
The stock-conversion plan was part of the movie-theater chain and meme-stock darling’s ongoing battle to eliminate debt. In response to the court ruling, AMC
AMC,
CEO Adam Aron said Sunday that the company had submitted a revised proposal for the APE-conversion plan. Specific details of that revised proposal have not yet been revealed.
The proposal that was rejected by Delaware Vice Chancellor Morgan Zurn would have provided AMC common shareholders with shares worth roughly $130 million, Wedbush analyst Alicia Reese said. “She denied the proposal in essence because it would deny the preferred shareholders the ability to file any separate claims against AMC,” Reese wrote in a note Monday. “Part of what swayed the judge was the nearly 3,000 individuals who sent in letters to sway the opinion, presumably out of concern for further share dilution.”
Related: AMC stock skyrockets on revised stock-conversion settlement plan after Friday’s surprise court setback
So now AMC, rather than basking in the glow of a blockbuster opening weekend for “Barbie” and “Oppenheimer,” now finds itself focused on a fresh set of challenges. “AMC is instead concerned with its cash requirements, APE
APE,
shares falling, and the writers’ and actors’ strikes persisting,” Reese wrote. “What may not be clear to AMC’s shareholders is that if the company is unable to convert APE shares, AMC will be forced to issue significantly more APE shares to cover its upcoming cash requirements. This will result in significantly more dilution for the company’s overall outstanding share count.”
As of March 31, 2023, AMC’s cash position was $495.6 million, down from $631.5 million in the same period last year. In his open letter to shareholders Sunday, Aron said that, if the company is unable to raise equity capital, “the risk materially increases of AMC conceivably running out of cash in 2024 or 2025, or of AMC being unable to satisfactorily refinance and stretch out the maturity of some of our debt (which is required of us beginning as early as 2024).”
Shares of AMC rose 23.6% Monday, while the APEs fell 1.9%. Its bonds are among the top gainers in high yield today, according to bond data solutions company, BondCliQ.
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Wedbush’s Reese said she expects continued volatility in both AMC and APE shares while the judge considers AMC’s modification. “In the meantime, we think AMC will wait as long as possible before issuing APE shares at such a significant discount to AMC shares, and while Adam Aron attempts to persuade his shareholders to act in the best interest of AMC,” she wrote. “If the modification is approved, AMC would be able to proceed with its proposals which were passed by nearly 90% at its special meeting of shareholders in March.”
“If that occurs, AMC’s 518 million shares outstanding would reverse-split (10 to 1) to 52 million AMC common shares outstanding,” Reese added. “Of AMC’s 930 million APE shares outstanding, 93 million would convert to AMC common shares, resulting in 145 million total shares outstanding as of the effective date of conversion, when APE shares would no longer trade.”
Wedbush had an underperform rating for AMC.
Related: AMC drops plans to charge for premium seats
AMC describes itself as the largest movie-theater company in the world, with approximately 950 theaters and 10,500 screens across the globe.
Over the past several years, the company has been on a roller-coaster ride that took it from a beleaguered pandemic victim to meme-stock phenomenon. AMC used a steep rise in its share price to tap into equity and debt markets, raising $917 million in January 2021.
The company’s APEs made their trading debut in August 2022. With its APE equity unit, AMC created something like a 2-for-1 stock split, one salvo in the company’s fight over stock issuances. The name is a nod to the investors who turned the company into a meme stock, who often refer to themselves as “apes” or “ape nation.”
Related: AMC shares fall after Citigroup opens downside 30-day catalyst watch for stock, sees downside pressure in coming days
Zurn described AMC’s stockholder base as “extraordinary” in her opinion Friday. “It includes a great number of human owners who care passionately about their stock ownership and the Company,” she wrote. “Many of them are connected to each other online. When notice went out to AMC stockholders, the reaction was unprecedented.” The court, she said, received more than 3,500 communications from approximately 2,850 purported stockholders.
B. Riley Securities was optimistic that Zurn would approve the settlement. “We believed this would be in the best interest of all shareholders by providing a path for AMC to both reduce debt leverage and pursue addition growth opportunities,” B. Riley Securities analyst Eric Wold wrote in a note Monday. However, the analyst noted that wording in the court ruling that the settlement cannot be approved “as submitted.” This likely opens the door for terms to be adjusted in a way that could be approved, he added.
B. Riley Securities projected that AMC is unlikely to move into positive free cash-flow territory, on a full-year basis, until 2025. “We believe the company needs the ability to access incremental liquidity to avoid a situation where equity shareholders may be left without anything,” Wold wrote. “In our opinion, this is something the Vice Chancellor should take into consideration when determining what is in the best interest of equity shareholders.”
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“Appropriate compensation is one thing to consider, but leaving shareholders and unit holders with anything of value should be considered the final goal,” Wold added.
B. Riley Securities had a neutral rating for AMC. Of eight analysts surveyed by FactSet, three had a hold rating and five had a sell rating for AMC.
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