AMC Entertainment Holdings converted its preferred stock units into common shares on Friday, a move that traders had been anticipating all week.
AMC (Ticker: AMC) first floated AMC Preferred Units, or APEs, last year on the New York Stock Exchange in an effort to raise money to pay down debt. The move came after the movie theater chain lacked enough votes in 2021 to agree to sell additional shares to raise capital.
Before the market opened on Thursday, AMC completed a 10-to-1 reverse stock split to reduce the number of AMC shares outstanding, which will allow the company to issue more shares in the future. Because of the split, each unit of APE owned by the trader turned into 1/10th of one share of AMC.
But the fun doesn’t stop there. AMC will issue common stock as payment to settle the litigation between AMC and certain shareholders. The company will make additional stock available to investors who hold common stock on August 24 to settle legal claims related to the APE conversion plan. AMC’s initial move to convert the APE units into common shares was put on hold because the settlement needed approval by the Delaware Chancery Court.
After the payment transfer and settlement, it “will have permission to issue up to 550 million additional shares without additional shareholder approval,” Wedbush analyst Alicia Reese wrote in a research note Thursday. “AMC may use the opportunity to pay off some or all of its debt balance while AMC shares are still trading at a premium.”
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Shares of AMC fell 3.4% on Friday to $13.88 after the conversion and after the stock closed down 26.4% on Thursday at $14.43. Investors worry that their holdings in the company will dilute as AMC issues more shares for sale. Posted by CEO Adam Aron on X in the past week that merchants who believe dilution is wrongly “wrong”.
“Sometimes fundraising is an absolute necessity,” said Aaron. Over the past 12 months, for example, AMC has raised $418 million in cash through the sale of APE units. As of the end of the fourth quarter on June 30, AMC had $435 million in cash on hand. Can you imagine How precarious would our circumstances be if we had not had the foresight to raise this money?
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