In a decisive move to combat debt, AMC Entertainment Holdings Inc. saw its shares slump 10.4% on Monday ahead of its planned stock conversion. The trading volume witnessed a dip, with 22.32 million shares being traded, falling short of the 65-day average of 29.09 million shares. The company is currently in the throes of converting its Preferred Equity units into a single AMC common share class, a strategic step in its ongoing battle to alleviate the financial burden. This move also includes a reverse 1-for-10 split of its common stock and a boost in its authorized common shares.
With the conversion of AMC Preferred Equity (APE) units into AMC common stock set for August 25th, the APE units will cease trading and subsequently be delisted from the New York Stock Exchange. The reverse stock split, slated for August 24th, is expected to result in a settlement payment consisting of one share of Class A common stock for every 7.5 shares of Class A common stock owned by settlement-payment recipients. This is a significant development in AMC’s journey, as the company, a popular meme-stock favorite, aims to enhance its resilience and eliminate the capital-raising inefficiencies of APE units trading at a significant discount to AMC shares.
AMC Shares Drop Ahead of Planned Stock Conversion
Shares of AMC Entertainment Holdings Inc. experienced a drop of 10.4% on Monday, as the company gears up for its planned stock conversion. The trading volume of the shares was 22.32 million, falling below the 65-day average volume of 29.09 million shares. As a result, about 26.7% of AMC’s float is currently shorted.
AMC’s Strategic Move to Eliminate Debt
The planned conversion of AMC Preferred Equity units (APEs) into AMC common shares is a strategic move by the company to reduce its debt. This process will result in a single AMC common share class being traded. In addition to this, AMC is also planning to implement a reverse 1-for-10 split of its common stock and an increase in its authorized common shares.
An 8-K form filed with the SEC last week stated that the reverse stock split is slated to occur on August 24, which is also the record date for a litigation-settlement payment. The conversion of APEs into AMC common shares is expected to happen on August 25, with APEs ceasing trading that day and subsequently being delisted from the New York Stock Exchange (NYSE).
Settlement Following the Stock Conversion
According to the company’s filing, AMC will issue a settlement payment, contingent upon the reverse stock split and conversion. For every 7.5 shares of Class A common stock owned by settlement-payment recipients as of August 24, one share of Class A common stock will be issued. Following the reverse stock split, an aggregate of 6,922,566 shares of Class A common stock will be issued in the settlement, based on 51,919,239 shares of Class A common stock expected to be held by the settlement recipients. The APE units experienced a drop of 1.5% on Monday.
The Impact of the Conversion
AMC CEO Adam Aron stated in a letter that the stock conversion plan would make AMC more resilient and would also eliminate the capital-raising inefficiencies of APE units trading at a significant discount to AMC shares. Alicia Reese, a Wedbush analyst, noted that the resolution of AMC’s court case removes "a significant overhang" for the company. She also predicted that AMC and APE shares will likely converge around $3 into the conversion.
In conclusion, AMC’s planned stock conversion appears to be a strategic move to enhance its financial position and eliminate debt. The company’s resilience in the face of this financial restructuring shows its commitment to its long-term survival and growth in the movie-theater industry.
