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AMC wants to convert its APE units into common stock and issue more shares.
Dreaming of time
The stock volatility Meme may be back, at least for one of its poster children—
AMC Entertainment Corporation
Shares (ticker: AMC) jumped 26% early Monday after a judge blocked AMC’s plan to convert so-called APE shares into common stock.
At one point in pre-opening trading on Monday, the stock was up 70%.
The upheaval is probably not over yet. AMC has submitted a revised securities conversion proposal in an attempt to address the court’s concerns. Chief executive Adam Aron said if the court is satisfied, he hopes to resume the plan “as soon as possible”.
If that happens, expect the rest of the profits since the ruling to be quickly reversed.
Friday’s ruling by Delaware Deputy Prime Minister Morgan Zurn had a big impact on stocks during a busy weekend for the movie theater group. screened the first installment of the Barbie and Oppenheimer movies. AMC stock (ticker: AMC) rose 26% Monday to $5.46, while APE stock (APE), or AMC Preferred Equity, fell 1.4% to $1.76.
Details of the revised agreement have yet to be released but the filing is expected to be made publicly available on Monday, Bloomberg reported, citing people familiar with the matter.
Wedbush analysts, led by Alicia Reese, said they expected the volatility to continue while the judge reviews the amendments made by the AMC. They added that even though the stock rallied, the ruling could lead to more diluted shares.
Shareholders challenging the conversion argued that it diluted existing shareholders without compensation, which ultimately led to a settlement.
“What AMC shareholders may not be clear on is that if the company is unable to convert APE shares, AMC will be forced to issue substantial additional APE shares to meet its upcoming cash needs,” they said. They have an Underperforming rating on AMC with a price target of $2.
For AMC, it’s all about raising capital and reducing the debt piled up during the pandemic when movie theaters are closed. It’s even more pressing as current writers and actors have doubts about the movie’s release next year and beyond.
The conversion will allow AMC to raise more capital by selling shares. Aron told investors that a new equity raise in the near term “is very important” to the company and that AMC is working to address the court’s concerns.
“AMC must be able to raise equity capital. I repeat, to protect AMC’s shareholder value in the long term, we MUST increase our equity. That’s especially the case now with increased uncertainty due to writer and actor strikes, which could delay the release of films currently scheduled for 2024 and 2025,” Aron wrote.
AMC reached an agreement with a group of shareholders, who argued that the stock conversion diluted existing common shareholders without any compensation. The terms of the settlement mean that common shareholders will receive more than $100 million worth of stock, the plaintiffs’ attorneys said.
But Judge Zurn said she could not approve the settlement because it harms the holders of the APE unit.
“The granting of additional shares to common shareholders is necessarily at the expense of preferred units; settlement review hurts preferred unit holders,” she wrote, according to the Wall Street Journal.
B. Riley analyst Eric Wold maintains a Neutral rating on AMC stock, with a price target of $4.50. He said the wording of the ruling “the settlement cannot be approved as submitted,” potentially “opening the door” for a revised settlement to be approved.
Write to Callum Keown at [email protected]
