Adam Aron, Chairman of the Board and CEO, AMC Entertainment, speaks at the 2021 Milken Institute Global Conference in Beverly Hills, California, U.S., October 18, 2021. REUTERS/David Swanson/File Photo Acquire Licensing Rights
Aug 14 (Reuters) – AMC Entertainment’s (AMC.N) shares slid 35% on Monday on fears that the approval of a revised stockholder settlement will allow the company to issue more shares to raise capital, a move that will dilute the worth of each common share.
The common shares dropped to $3.45, levels just before the meme stock mania of January 2021 when retail traders hyped up the stock on online forums like Reddit.
The preferred stock units called “APE” , which trade at a significant discount to common shares, jumped 15% to $2.05.
Under the settlement, AMC will provide stock worth an estimated $129 million to common shareholders to settle potential legal claims related to a stock conversion plan.
The approval comes just three weeks after the judge rejected a prior version of the settlement.
The ruling allows AMC to follow through with a plan, announced in March, to convert preferred share units into common stock, a one-for-ten reverse share split and potentially sell more shares to help pay down some of its $5.1 billion debt.
The reverse stock split is expected to take effect on Aug. 24, AMC said on Monday, with “APE” ceasing to trade from Aug. 25, while its Class A common stock is expected to increase to 550 million from about 524 million.
“The concern for common stockholders is that they are getting diluted to oblivion by the preferred for starters and that they will be diluted more after additional capital raises – if successful,” said Thomas Hayes, managing member of Great Hill Capital LLC in New York.
Wedbush analysts said they expect AMC and APE shares to converge around $3 per share before the conversion.
CEO Adam Aron called the ruling a “significant milestone” on X, formerly known as Twitter.
AMC, which was at the heart of the meme stock mania in 2021, launched preferred “APE” units as a special dividend last year in a nod to retail investors who call themselves “apes” on social media such as Reddit and Twitter.
Aron said the company has raised $418 million in cash through the sale of “APE” units over the past 12 months.
AMC was sued earlier this year by some investors who alleged the company was attempting to circumvent the will of common stock holders who opposed the company diluting their holdings.
The world’s largest movie theater chain last week reported a surprise quarterly profit as movie theaters saw a gradual revival following an uneven recovery from pandemic lows.
“This gives AMC an opportunity to fund longer term growth, despite the short term hit to stock,” said JJ Kinahan, chief executive officer of IG North America.
Reporting by Medha Singh in Bengaluru, Additional reporting by Akash Sriram; Editing by Saumyadeb Chakrabarty and Sriraj Kalluvila
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