AMC Entertainment Inc. sank after proposing to convert preferred equity units into common shares along with a 10-to-1 reverse stock split.
(Bloomberg) — AMC Entertainment Inc.
sank after proposing to convert preferred equity units into common shares along with a 10-to-1 reverse stock split.
The changes would stop investors from pushing AMC toward “penny stock” territory, Adam Aron, chief executive officer of the world’s largest movie theater chain, said Thursday.
The preferred equity units debuted in August and were quickly caught up in volatility linked to retail trading of so-called meme stocks.
“It is in the best interests of our shareholders for us to simplify our capital structure, thereby eliminating the discount that has been applied” to the preferred equity units, Aron said in a statement.
The company is seeking a special shareholder meeting to vote on the board’s proposals.
AMC also said that it raised $110 million through the sale of preferred equity units to debt holder Antara Capital LP at a weighted average price of 66 cents each, below market value.
AMC shares tumbled as much as 22% in New York, to a low of $4.11, before paring their decline.
Before Thursday, the stock had fallen 69% so far this year. The preferred shares, known by their “APE” symbol, doubled to as high as $1.38. The company’s bonds also jumped.
In August, AMC issued a dividend of one preferred equity unit for each share of common stock, in effect putting in place a 2-for-1 stock split.
That split enabled the company to sell hundreds of millions of preferred equity shares in an at-the-market program, raising capital but setting the table for further dilution. Investors pushed back on an effort to issue 25 million new shares last year.
AMC said it wants to adjust its capital structure so it can issue shares as easily as it has been able to issue preferred equity.
The preferred equity has achieved its purpose by allowing AMC to raise cash, reduce debt and explore possible acquisitions, Aron said.
The CEO has embraced the company’s meme stock status and the latest moves may please his many fans in retail trading.
That group of investors has grown in numbers as movie theaters start to bounce back from the pandemic.
Retail traders flocked to both the common and preferred shares on Fidelity’s trading platform Thursday, with five times as many people buying AMC shares as selling them.
The AMC news was also among the day’s most-discussed topics on Reddit’s r/wallstreetbets forum.
–With assistance from Kevin Simauchi.
(Updates with retail traders starting in eighth paragraph.)
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