AMC stock plunges, preferred units soar in aftermath of conversion settlement

Shares of AMC Entertainment dropped by 35% on Monday, prompting concerns about the approval of a revised stockholder settlement. This settlement would allow the company to issue more shares in order to raise capital, but it would dilute the value of each common share. The stock fell to levels seen before the meme stock mania of January 2021 when retail traders hyped up the stock on online forums.

In contrast, the preferred stock units called “APE” saw a 15% jump, reaching $2.05. This settlement requires AMC to provide stock worth an estimated $129 million to common shareholders to settle potential legal claims tied to a stock conversion plan. It’s important to note that this approval comes after a judge rejected a prior version of the settlement three weeks ago.

The ruling allows AMC to move forward with plans to convert preferred share units into common stock, undergo a reverse stock split, and potentially sell more shares to help pay down its debt. The reverse stock split is expected to take effect on August 24th. Additionally, “APE” stock will cease trading on August 25th.

There are concerns that common stockholders will be further diluted by the preferred stock and future capital raises if successful. Wedbush analysts predict that AMC and APE shares will converge around $3 per share before the conversion. Despite these concerns, AMC CEO Adam Aron described the ruling as a “significant milestone.”

Last year, AMC launched preferred “APE” units as a special dividend for retail investors who refer to themselves as “apes” on social media. Over the past year, the company has raised $418 million in cash through the sale of these units. Earlier this year, AMC faced a lawsuit from investors accusing it of trying to bypass the will of common stockholders.

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Despite the short-term hit to the stock, some experts believe that this settlement provides an opportunity for AMC to fund long-term growth. JJ Kinahan, CEO of IG North America, stated that the settlement could help in the gradual revival of movie theaters following the pandemic. In its last quarterly report, AMC reported a surprise profit, indicating a positive trend for the company in the face of challenges posed by the pandemic.

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About the Author: Piers Parker

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