Shares in the top exhibitor AMC Entertainment plunged after the company announced plans to conduct a stock split and raise $110 million through the sale of “APE” shares.
The often-volatile stocks, which rode a meme-trading wave up near $60 in 2021 despite major disruptions to movie releases, have recently traded in the $5 range. They fell more than 15% in early trading today to around $4.40 per share, their lowest point since the Covid depths of 2020.
The company packed several articles in a press release before the market opened. He said his board would call a special meeting for holders of AMC common stock and APE units, with votes combined. On the agenda will be a proposal to increase the authorized number of AMC common shares to authorize the conversion of APE units into AMC common stock and another plan to initiate a consolidation of AMC common shares. ‘AMC at a ratio of 1:10. A final proposal presented to shareholders is that of “adjusting the authorized ordinary share capital” so that the company can issue additional ordinary shares as it can currently with APEs.
APEs, short for AMC Preferred Equity, began trading last summer as the company sought new ways to raise funds to pay off its more than $5 billion in debt. The theatrical box office, the lifeblood of society, has recovered somewhat but remains about a third below pre-pandemic highs. The APE acronym is a nod to the company’s loyal base of individual investors, many of whom trade stock tips on Reddit and call themselves “monkeys.” (AMC CEO Adam Aron was nicknamed “the silverback” after the rare species of gorilla.) Beyond this marketing veneer, EPAs were a financial mechanism for the company to try to raise funds, which it used to do before by issuing more shares than its common stock. A vocal group of investors criticized this plan, leading to the creation of new preferred stock units.
Aron said the moves are intended to “simplify our capital structure” and address the mismatch between AMC common stock and APEs. Reverse splits reduce the total amount of shares outstanding and are typically done by companies looking to avoid delisting or improve their standing with investors. Stock splits are common (recent examples include Apple and Amazon) and usually a sign of progress. Reverse splits, on the other hand, are often perceived as a negative signal.
Another headline in the release was AMC’s disclosure that it would raise $110 million in new equity through the sale of the recently introduced APEs to Antara Capital. Both tranches will have a weighted average price of 66 cents per share. APE closed at 68.5 cents on Wednesday on the New York Stock Exchange.
The equity deal will see Antara, which already owns AMC debt, swap $100 million of debt due in 2026 for around 91 million APE units. By reducing principal debt by $100 million, AMC said its future annual interest costs will decrease by about $10 million.
Antara agreed to hold its APE units for up to 90 days and vote them at the special meeting in favor of the proposals, the company said. AMC added that it will limit the amount of additional equity it can raise before the special meeting.
“AMC’s continued capital raising efforts and balance sheet continue to strengthen in earnest,” said CEO Adam Aron. Clearly, the existence of the EPAs has achieved exactly their objectives. They have allowed AMC to raise welcome cash, reduce debt, and in doing so, deleverage our balance sheet and allow us to explore potential M&A activity. However, given the consistent trading discount we regularly see in the price of APE units relative to AMC common stock, we believe it is in the best interests of our shareholders to simplify our capital structure, eliminating thus the discount that has been applied to the APE units on the market.
Aron argued that the company’s liquidity had been “significantly improved” by the moves and that its balance sheet was “strengthened”. A “growing” box office in 2023, he added, will benefit the company.
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