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Shares in top exhibitor AMC Entertainment plunged after the company said it plans to pursue a reverse stock split and raise $110 million from the sale of “APE” equity.
The often-volatile shares, which rode a meme-trading wave up to almost $60 in 2021 despite major disruptions to theatrical moviegoing, have recently been trading in the $5 range. They fell more than 15% in early trading today to about $4.40 a share, their lowest point since the Covid depths of 2020.
The company packed several news items into a press release before the market opened. It said its board of directors will convene a special meeting for holders of both AMC common shares and APE units, with votes tallied together. On the agenda will be a proposal to increase the authorized number of AMC common shares to permit the conversion of APE units into AMC common shares and another plan to initiate a reverse-split of AMC common shares at a 1:10 ratio. A final proposal going before shareholders is one to “adjust authorized ordinary share capital” in such a way that the company could issue additional common equity as it currently can with APEs.
The APEs, short for AMC Preferred Equity, began trading last summer as the company sought new ways to raise funds to pay down its debt of more than $5 billion. Theatrical box office, the lifeblood of the company, has recovered somewhat but remains about one-third lower than pre-pandemic highs. The APE acronym is a nod to the company’s loyal base of individual investors, many of whom trade stock tips on Reddit and call themselves “apes.” (AMC CEO Adam Aron has been nicknamed “the silverback” after the rare species of gorilla.) Beyond that marketing veneer, the APEs were a financial mechanism to allow the company to try to raise cash, which it had previously sought to do by issuing more shares of its common stock. A vocal group of investors criticized that plan, leading to the creation of the new preferred equity units.
Aron said the moves are intended to “simplify our capital structure” and address the disparity between AMC common shares and APEs. Reverse splits reduce the total amount of shares outstanding and are typically done by companies looking to avoid delisting or improve their standing with investors. Stock splits are common (recent examples include Apple and Amazon) and generally a sign of progress. Reverse splits, on the other hand, are often perceived as a negative signal.
Another headline in the release was AMC’s disclosure that it will raise $110 million of new equity capital through the sale of the recently introduced APEs to Antara Capital. The two tranches will have a weighted average price of 66 cents a share. APEs closed at 68.5 cents on Wednesday on the New York Stock Exchange.
The equity deal will see Antara, which already holds AMC debt, exchange $100 million in debt due in 2026 for about 91 million APE units. By shaving $100 million of principal debt, AMC said its future annual interest expense will drop by about $10 million.
Antara has agreed to hold their APE units for up to 90 days and vote them at the special meeting in favor of the proposals, the company said. AMC added that it will limit the amount of additional equity capital it can raise prior to the special meeting.
“AMC’s ongoing capital raising efforts and balance sheet strengthening continues in earnest,” CEO Adam Aron said. “Clearly, the existence of APEs has been achieving exactly their intended purposes. They have let AMC raise much welcomed cash, reduce debt and in so doing deleverage our balance sheet and allow us to explore possible M&A activity. 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.”
Aron maintained that the company’s liquidity has been “significantly enhanced” by the moves, and its balance sheet “strengthened.” A “growing” box office in 2023, he added, will benefit the company.
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