In the latest financial maneuver, AMC Entertainment Holdings is set to convert its preferred equity units into common stock during Friday morning’s opening bell, an eagerly awaited move by traders. The company, which debuted its AMC preferred units (APEs) on the New York Stock Exchange last year, is using this strategy as a means to raise funds needed to clear company debts. This strategic shift comes in the wake of 2021’s unsuccessful attempt to garner sufficient votes for the sale of additional stock to raise capital.
Adding to the intrigue, AMC has executed a 10-for-1 reverse stock split ahead of Thursday, a move designed to pare down the number of AMC shares currently in circulation. This action will pave the way for the company to issue more shares in the future. Consequently, each APE unit a trader holds will convert into 1/10 of one AMC share come Friday. This conversion is part of a broader plan that includes issuing common stock as a litigation settlement payment to some shareholders, a move that initially faced hurdles due to requisite approval from the Delaware Chancery Court.
AMC Entertainment Holdings to Convert Preferred Equity Units to Common Stock
AMC Entertainment Holdings (AMC) has announced plans to convert its preferred equity units (APEs) to common stock during Friday’s opening bell, a move traders have been eagerly anticipating. The move follows AMC’s struggles in 2021 when it didn’t garner enough votes to approve the sale of additional stock to raise capital.
Reverse Stock Split
Before the market opened on Thursday, AMC carried out a 10-for-1 reverse stock split, reducing the number of AMC shares outstanding. This strategic move will allow the company to issue more shares in the future. As a result of the split, every APE unit held by a trader will convert to 1/10 of one AMC share on Friday.
Litigation Settlement Payment
Adding to the developments, AMC plans to issue common stock as a litigation settlement payment between the company and some shareholders. The company will provide additional stock to investors who held common shares on Aug. 24, settling legal claims related to the APE conversion plan. The initial plan to convert APE units to common stock was delayed as it required approval from the Delaware Chancery Court.
Potential to Issue More Shares
Once the conversion and settlement payment are completed, AMC will have the authorization to issue up to 550 million additional shares without further shareholder approval, according to Wedbush analyst Alicia Reese. AMC might use this opportunity to repay some or all of its debt balance while its shares are still trading at a premium.
However, AMC’s shares closed 26.4% lower on Thursday at $14.43 each. Investors are concerned about potential dilution of their holdings as AMC plans to issue more stock. CEO Adam Aron defended the move, stating that raising money is often a necessity.
AMC’s decision to convert APEs into common stock is a strategic move aimed at resolving the company’s financial issues. The reverse split and the potential issuing of additional shares may allow AMC to pay off its debts. However, the concern of dilution remains among investors. It will be interesting to see how AMC manages these concerns and how these decisions will affect the company’s stock price in the long run.