AMC Entertainment Holdings is gearing up for a significant event today as it moves forward with the conversion of its preferred equity units to common stock. This much-anticipated move has been the focus of attention among traders throughout the week.
The entertainment giant, trading under the ticker symbol AMC, introduced its AMC preferred units (APEs) on the New York Stock Exchange last year with the aim of raising funds to address its debts. This strategic move followed a situation in 2021 where AMC lacked the necessary votes to greenlight the sale of additional stock for capital raising purposes.
In preparation for the conversion, AMC recently executed a 10-for-1 reverse stock split before the market opened on Thursday. This maneuver aimed to reduce the total number of AMC shares in circulation, enabling the company to issue more shares in the future. Consequently, every APE unit held by a trader will convert to 1/10 of an AMC share on Friday.
However, the upcoming developments don’t stop there. AMC is also set to distribute common stock as part of a litigation settlement between the company and select shareholders. Under this arrangement, investors who were in possession of common shares as of August 24 will receive additional stock, serving as a resolution for legal claims tied to the APE conversion plan. It’s worth noting that the initial conversion of APE units to common stock was subject to approval from the Delaware Chancery Court due to this settlement.
Upon the successful completion of both the conversion and the settlement payment, Wedbush analyst Alicia Reese pointed out that AMC will obtain the authorization to issue up to 550 million additional shares without needing further approval from shareholders. Reese also noted the possibility of AMC using this opportunity to reduce its debt while its shares are trading at a premium.
Despite the positive outlook, AMC’s stock faced a decline of 26.4% on Thursday, closing at $14.43. As AMC plans to issue more stock, concerns about potential dilution of investors’ holdings have arisen. CEO Adam Aron addressed these concerns by emphasizing the necessity of raising capital, especially during challenging times.
Aron stated, “Sometimes raising money is an absolute imperative… Can you imagine how dire our circumstance would have been if we hadn’t had the foresight to raise that cash?” This sentiment echoes the idea that AMC’s strategic moves have been crucial in navigating the economic uncertainties brought about by the pandemic.
As the anticipated conversion and settlement payment unfold, the stock market will be closely watching AMC’s next steps and the impact on its valuation and shareholders. With AMC shares currently trading at $14.53 in premarket trading, the stock’s performance in the wake of these events will undoubtedly capture the attention of both traders and investors alike.
