AMC Entertainment Holdings (AMC) is set to convert its preferred equity units to common stock during Friday morning’s opening bell, a development eagerly awaited by traders throughout the week.
Background
Last year, AMC introduced its AMC preferred units (APEs) on the New York Stock Exchange as a means to generate funds for repayment of company debts. The decision was made after the movie theater chain faced insufficient votes in 2021 to proceed with the sale of additional stock for capital raising.
Reverse Stock Split
In anticipation of the conversion, AMC recently completed a 10-for-1 reverse stock split. This strategic move, implemented ahead of Thursday’s market opening, aims to reduce the overall number of outstanding AMC shares, allowing the company greater flexibility for future share issuance. Consequently, every APE unit held by traders will automatically convert to 1/10 of one share of AMC on Friday.
Additional litigation settlement
However, that’s not all. As part of a litigation settlement between AMC and certain shareholders, the company will also issue common stock. Investors who currently hold common shares as of August 24 will receive extra stock as compensation, settling legal claims associated with the APE conversion plan. It should be noted that AMC’s initial plan to convert APE units to common stock faced delays due to the requirement of approval from the Delaware Chancery Court.
AMC Entertainment Holdings is poised for significant developments as it takes this transformative step in its financial journey.
AMC Plans to Issue Additional Shares to Repay Debt
Concerns of Shareholders
Shares of AMC closed 26.4% lower on Thursday, alarming investors who fear that their holdings will be diluted as AMC begins issuing more stock for sale. However, CEO Adam Aron reassures traders that those who believe dilution is a mistake are mistaken themselves.
Raising Money as a Necessity
Aron explains the importance of raising money in certain circumstances, stating that over the past twelve months, AMC has managed to raise $418 million through the sale of APE units. As of the most recent June 30 quarter-end, the company has $435 million in cash. Aron emphasizes the significance of these cash inflows in preventing a dire financial situation.
