AMC stock falls after CEO warns the company may be forced to sell more “APEs.”
The stock closed strongly on Wednesday after the CEO commented that the company could potentially be forced to sell more shares for less money if shareholders don’t approve moves that allow it to issue additional common shares.
During Tuesday night’s fourth-quarter earnings conference call
CEO Adam Aron asked shareholders to approve an initiative that would increase the number of authorized AMC common shares (ticker: AMC) and convert AMC Preferred Equity Units (APE) into common stock. The actions would eliminate a price gap between AMC common stock and APE units and allow AMC to sell common stock rather than just APE units.
Aron warned Tuesday that the company could be forced into more dilutive offers if shareholder voting falls short – and APE units continue to trade at a discount.
“We wouldn’t be constrained from raising capital, but we would be raising capital on much less attractive terms,” Aron said. “It would cost further stock dilution that would be 100% avoidable if a majority of our shareholders voted yes.”
AMC common shares fell 7.6% to $6.57 on Wednesday. APE units fell 9% to $1.87.
“I think that’s the sticking point — that AMC must continue to sell APE shares at a discount, causing even more dilution than if the vote goes ahead,” Wedbush analyst Alicia Reese told Barron’s. “There will be further dilution one way or another to keep AMC afloat while it continues to pay down its debt.”
Amidst the pandemic lockdowns, the company kept afloat by selling shares after the January 2021 surge in meme shares propelled the theater chain into the center of a social media investment move. But AMC’s ability to issue stock eventually hit a wall. AMC withdrew a proposal to increase the number of shares it could issue in 2021, citing a mixed reaction from its shareholder base.
Instead, in August, the company issued AMC Preferred Equity units to each AMC common shareholder. Each unit represents one-hundredth of a preferred stock — which has 100 times the voting power of a common stock — meaning each unit has the same voting power as a common stock.
AMC was able to issue the APE units because it needed shareholder approval to issue more common stock but no preferred stock. After each shareholder was provided with an APE unit, they were free to sell additional APE units. The units were trading at a deep discount to common stock, meaning AMC will need to sell more of them to raise cash.
The APE entities are the subject of a stockholder lawsuit in which the plaintiffs are asserting their preferred stock over common stockholders and subsequent APE stock sales restrict the voting rights of common stockholders who may have opposed the issuance of additional stock. AMC will be able to hold the vote but will have to wait until a judge rules on the matter before implementing the measures. A hearing is scheduled for April 27.
Aron acknowledged the litigation during the call, describing it as “misguided.”
“We believe that such litigation is unfounded, that our actions were fully lawful and consistent with our charter, and we will vigorously defend our position on the matter,” Aron said.
The company is also asking shareholders to approve a 10-for-1 reverse stock split, but on the condition that it will only go ahead if the APE vote goes through.
For the fourth quarter, the company reported a lower-than-expected loss. Reese notes that the company has generated cash and believes it can do so for full-year 2023 “if industry coffers live up to current expectations.”
“It’s not going to generate a lot of money yet, but some,” she said. “AMC should be fine – there’s just going to be a lot of dilution if the vote doesn’t pass.”
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https://www.barrons.com/articles/amc-stock-ape-preferred-adam-aron-3072233e?siteid=yhoof2&yptr=yahoo AMC stock falls after CEO warns the company may be forced to sell more “APEs.”