AMC Stock Rises as Hearing Risks Delay APE Conversion

(Bloomberg) — AMC Entertainment Holdings Inc.’s common stock rose 23% after a Delaware court announced it will hear a preliminary restraining order on April 27, suggesting a much-anticipated conversion between stocks and preferred stocks could take longer than anticipated.

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The theater operator has been pushing for a reshuffle of its share structure that would convert preferred stock – ticker APE – into AMC common stock this month. However, the April hearing is seen as a headwind by risk arbitrage traders looking to capitalize on the spread as it creates uncertainty over the timing of the one-for-one swap.

AMC investors are scheduled to vote on March 14 on a set of proposals that would approve the conversion along with a 10-for-1 reverse stock split and the ability to sell more shares. The more than a month difference between the vote and the hearing saw the gap between the two assets widen to $5.56 at Monday’s close, the widest since early December.

Common stock rose to $7.61 while APE stock slipped to $2.05.

Read: AMC’s ‘Home Run’ Arbitrage Trade Collapses With Vote on Tap

A risk related to a delayed conversion date will force Arbitrage to hold its bets against the common stock longer, cutting into potential gains after the cost of shorting AMC stock has soared in recent weeks.

“The injunction hearing on April 27 extends the time investors must hold long APE/short AMC by at least a month and a half, a painful outcome for arbitragers given the skyrocketing cost of borrowing,” Cabot Henderson said. who focuses on merger arbitrage and special situations at JonesTrading.

The story goes on

As traders circulated the hearing date and common stock soared, retailers took to popular forums to discuss the move. AMC quickly became one of the most talked about tickers on Reddit’s WallStreetBets and was the top trending symbol on chat room Stocktwits.

As the chatter mounted, amateur investors appeared to be taking advantage of the gains by selling off the shares, with AMC being among the top 10 selling assets on Fidelity’s platform.

–Assisted by Matt Turner.

(Updates prices, adds retail sales)

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