AMC Entertainment Holdings
will convert its preferred equity units to common stock during Friday morning’s opening bell, a move traders have been anticipating all week.
AMC
(ticker: AMC) debuted its AMC preferred units, or APEs, last year on the New York Stock Exchange in an attempt to raise money to pay off company debts. The move came after the movie theater chain in 2021 lacked enough votes to approve the sale of additional stock to raise capital.
Before the market opened Thursday, AMC completed a 10-for-1 reverse stock split ahead of Thursday’s so as to reduce the number of AMC shares outstanding, which will allow the company to issue more shares down the line. Because of the split, every one APE unit a trader has will convert to 1/10 of one share of AMC on Friday.
But the fun doesn’t stop there. AMC will issue common stock as a litigation settlement payment between AMC and some shareholders. The company will provide extra stock to investors who held common shares on Aug. 24, to settle legal claims related to the APE conversion plan. AMC’s initial move to convert APE units to common stock had been held up because the settlement needed Delaware Chancery Court approval.
Once AMC completes the conversion and settlement payment, “it will have the authorization to issue up to 550 million additional shares without further shareholder approval,” Wedbush analyst Alicia Reese wrote in a research note Thursday. “AMC may use the opportunity to repay some or all of its debt balance while AMC shares are still trading at a premium.”
Shares of AMC closed 26.4% lower Thursday to $14.43 each. Investors are concerned that their holdings in the company will be diluted as AMC issues more stock to be sold. CEO Adam Aron posted on X on last week that traders who believe dilution is a mistake are “wrong.”
“Sometimes raising money is an absolute imperative,” Aron said. “Over the past twelve months, for example, AMC raised $418 million of cash through the sale of APE units. As of the most recent June 30 quarter end, AMC had $435 million of cash on hand. Can you imagine how dire our circumstance would have been if we hadn’t had the foresight to raise that cash?”
Write to Angela Palumbo at [email protected]
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