AMC’s APE to Cease Trading from 25th Aug
AMC Entertainment Holdings (AMC) is having a tumultuous week. It all started on Friday when Delaware Chancery Court ruled that the company could proceed with its proposal on March 14. By majority shareholder vote, the proposal outlined that all outstanding APE units would be converted into AMC common shares on August 24th.
A day later, APE units will cease trading. How that will affect the meme stock arena is yet to be unfolded.
APE to Cease Trading
Issued in Q2 2022 to raise more capital to repay debt, as AMC Preferred Equities (APEs), each AMC shareholder received one APE. Since then, APE units served AMC well, having raised $435 million through sales. The problem is the proposal would enact the stock split reversal in a 1-for-10 ratio.
Retail AMC shareholders, dubbed apes on r/wallstreetbets, are reacting negatively/speculatively to the proposal’s sanction by the court. Since Friday, AMC shares have lost -32% of value in premarket trading, while APE units gained 20%.
In July, the month of meme stock comeback, the court rejected a $129 million worth settlement to AMC common shareholders related to the stock split conversion proposal that was perceived as dilution. After the tweaked settlement was approved on Friday, CEO Adam Aron described it as a “significant milestone.”
As a mitigating effort, AMC CEO Adam Aron published an open letter on Monday, attempting to address apes’ top concerns.
The Purpose Behind the APE Stock Split Reversal
According to Aron, the Friday-approved proposal is all about AMC stock consolidation. Specifically to simplify AMC ownership into a single equity class. Aron noted complexities in stock brokerages that have resulted from the split, incurring capital inefficiencies.
Moving forward after August 24th, the consolidated AMC equity would be more attractive to investors. Regarding the 1-for-10 stock split reversal, Aron made an analogy to justify the decision.
“If someone takes ten $1 bills from your left hand but puts one $10 bill in your right hand, would you be losing 90% of your money?”
However, Aron admits AMC’s value after the proposal’s execution is unknown. Whether it goes up or down depends on “bad actors,” to which Aron attributes the current AMC price drop.
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How Much Debt Does AMC Have to Service?
AMC published its Q2 2023 earnings last week, on August 8th. The company’s net income turned positive year-over-year, at $8.6 million, compared to Q2 ‘22 loss of $121.6 million. During the quarter, APE sales resulted in $34 million in cash on hand, contributing to AMC’s debt principal reduction by $42 million.
While AMC tracked 12% attendance growth, it scored 15% total revenue growth. The quarter ended with $643.4 million as available liquidity, with interest payments going down to $134.7 million compared to the end of 2022’s $178.7 million.
Overall, AMC holds $4.8 billion in debt, bringing down the company’s debt-to-equity ratio to -186%. With the recent stock downfall, the negative percentage has increased.
AMC shares trade at -8.4% of their value year-to-date, at $3.60. APE units increased by 75%, at $2.09 per unit during the same period. Interestingly, this is nearly the same year-to-date performance of Bitcoin, which gained 77%.
Do you think AMC shares will end up in two-digit positive territory by the end of 2023? Let us know in the comments below.