Shares of AMC Entertainment, the largest exhibitor, fell after the company said it plans to pursue a reverse stock split and raise $110 million from the sale of “APE” stock.
The often volatile stock, which has ridden a wave of M trading as high as nearly $60 in 2021 despite major turmoil in the theatrical offering, has recently been trading in the $5 range. They are down more than 15% in early trading today to about $4.40 a share, their lowest since the depths of Covid 2020.
The company packed several news items into a press release before the market opened. It said its board of directors would hold a special meeting of the owners of AMC common stock and APE units, with the votes counted together. On the agenda will be a proposal to increase the authorized number of AMC common stock to allow APE units to be converted into AMC common stock and a further plan to initiate a 1:10 reverse split of AMC common stock. The final proposal being put before the shareholders is to “adjust the authorized common share capital” in such a way as to enable the company to issue additional common shares as is currently the case with APEs.
APE, short for AMC Preferred Equity, began trading last summer as the company sought new ways to raise money to pay down its more than $5 billion in debt. The theatrical box office, the company’s lifeblood, has recovered somewhat, but it’s still about a third short of pre-pandemic highs. The acronym APE is a reference to the company’s loyal base of retail investors, many of whom trade stock advice on Reddit and call themselves “monkeys.” (AMC CEO Adam Aaron has been dubbed a “Silverback” after the rare species of gorilla.) In addition to the marketing veneer, APEs were a financial mechanism to allow the company to try to raise money, which it had previously sought by issuing more shares of its stock. its ordinary shares. A noisy group of investors criticized that plan, which led to the creation of new preferred stock units.
Aaron said the moves are intended to “streamline our capital structure” and address the disparity between AMC’s common stock and APE’s. 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 are generally a sign of progress. On the other hand, reverse splits are often seen as a negative sign.
Another headline in the release was AMC’s disclosure that it will raise $110 million in new capital through the sale of recently filed APEs to Antara Capital. The weighted average price of the two tranches will be 66 cents a share. APE closed at 68.5 cents on Wednesday on the New York Stock Exchange.
The stock deal will see Antara, which already owns AMC’s debt, exchange $100 million in debt due in 2026 for about 91 million APE units. By eliminating $100 million in principal debt, AMC said future annual interest expenses would be reduced by about $10 million.
The company said Antara agreed to hold its APE units for up to 90 days and to vote on them at the special meeting in favor of the proposals. AMC added that it will limit the amount of additional capital it can raise prior to the private meeting.
“AMC’s ongoing efforts to raise capital and strengthen the balance sheet continue in earnest,” said CEO Adam Aron. “Obviously having the monkeys was serving exactly the purposes for which it was intended. They allowed AMC to raise a lot of welcome cash, reduce debt, and in doing so reduce our balance sheet and allow us to explore potential M&A activity. However, given the consistent business discounting we’re seeing significantly Routine in the price of APE units compared to AMC’s common stock, we believe it is in the best interest of our shareholders to streamline our capital structure, thereby eliminating the discount that used to be applied to APE units in the market.”
Aaron emphasized that the company’s liquidity has been “significantly enhanced” by the moves, and its balance sheet has been “enhanced.” He added that the “growing” box office in 2023 would benefit the company.
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