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Despite having new fundraising options in the wake of a judge’s ruling on Friday, AMC Entertainment started the week on a jarring note as its stock price skidded to its lowest level since January 2021.
The shares plummeted 35% on more than five times their normal trading volume, closing at $3.40. Investors pounced after a Delaware Chancery Court judge approved a settlement with shareholders and ruled that the company can convert its “APE” (AMC Preferred Equity) shares into common shares. A group of retail investors (individuals now comprise the majority of AMC’s investor base) had filed suit seeking to block the APE-to-equity conversion and a corresponding 1-for-10 reverse stock split, citing concerns about dilution. The corporate maneuvers are designed to provide much-needed liquidity so that AMC can avoid the fate of top peers like Regal Cinemas parent Cineworld, which just emerged from a bankruptcy process.
As the company’s stock price was plunging, APE units rose 16% to close at their highest point since February.
AMC CEO Adam Aron has been warning of the potential for a cash crunch, even as the company reported an encouraging set of second-quarter financials. Especially vexing for the exhibition sector is the unknown impact of the dual strikes paralyzing Hollywood. If they go deep into the fall without a resolution, the movie pipeline will undoubtedly be affected beyond the release-date reshuffling that has gone on in recent weeks.
In a research note to investors Monday morning, B Riley analyst Eric Wold said the judge’s ruling “opens the door” for AMC to potentially raise as much as $168 million. Even though major concerns remain about the company’s debt load, Wold wrote that the new equity to be raised after the APE conversion could be effectively deployed. It “could be put to work to de-lever the balance sheet, seek out additional movie theaters to acquire, and diversify with new growth strategies outside theatrical exhibition—all by using equity with an elevated valuation multiple that allows AMC to make these expansion moves in a much less expensive manner,” he wrote.
