AMC Theatres’ new cash-raising security AMC Preferred Equity (APE) units could become a thing of the past after the exhibition giant called for a special shareholder meeting to vote on converting APE units into AMC common shares, and doing a 1-10 reverse split of common stock.
Though economically equivalent to AMC common shares, the value of AMC Preferred Equity (APE) units have been in free fall and have traded at a steep discount to the AMC common shares. On Thursday, AMC shares collapsed in value in pre-market trading, down 24 percent to $4.03, while APE shares were trading at $0.68.
Stock in AMC Entertainment fell by 60 cents, or just over 11 percent, to $4.70 soon after the start of the trading day.
The APE units — a name for the corporate tool adopted by meme stock investors — have worked as a new security to help AMC raise fresh capital, not least to help pay down a hefty debt load and fund acquisitions. On Thursday, AMC said it raised $110 million to pay down debt by selling preferred APE units to Antara Capital, LP at an average $0.60 per share, just down on the closing price of $0.68 on the New York Stock Exchange on Wednesday.
But besides the sale of APE units to Antara that reduces AMC’s debt load by around $100 million, the company’s board of directors is seeking the special meeting of shareholders of both AMC common shares and APE units to permit a conversion of APE units into AMC common shares. Adam Aron, CEO of AMC Entertainment, in a statement said the APEs had done their job to raise fresh cash and pay down debt.
“However, given the consistent trading discount that we are routinely seeing in the price of APE units compared to AMC common shares, we believe 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 APE units in the market,” he added.
Also Thursday morning, Aron took to his Twitter account to tell retail investors that a reverse stock split would reduce the number of AMC shares, and so boost their price as they continue to fall in value.
“Also, a company as distinguished as AMC shouldn’t let Wall Streeters wishing us harm drive us to being a ‘penny stock.’ So in the shareholder vote, you also can consider a 1:10 reverse stock split. Simple arithmetic, if approved, the share count goes down so share price goes up,” Aron wrote.