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AMC’s revised stock-conversion plan was approved by the Delaware Chancery Court Friday, marking what CEO Adam Aron described as a “significant milestone” in a letter to investors Monday.
“Knowing that we can do our best for AMC to smartly raise capital is a terrific relief,” Aron said. The CEO has repeatedly warned that AMC faces liquidity challenges.
In a form 8-K filed with the SEC Monday, AMC
AMC,
outlined the company’s plans over the next two weeks that will result in the conversion of the AMC Preferred Equity
APE,
units and the trading of a single AMC common share class. The company is planning a reverse 1-for-10 split of its common stock and an increase in AMC’s authorized common shares.
The reverse stock split is expected to occur on Aug. 24, which is also the record date set for a litigation-settlement payment as of close of business that day. Conversion of APEs into AMC common stock is expected to occur on Aug. 25, with the APEs ceasing trading that day and subsequently being delisted from the New York Stock Exchange.
Related: AMC shares fall 27% after court OKs revised stock-conversion plan
Contingent upon the reverse stock split and conversion, AMC will make a settlement payment consisting of one share of Class A common stock for every 7.5 shares of Class A common stock owned by settlement-payment recipients as of Aug. 24, the company said in its filing. Following the reverse stock split, based on 51,919,239 shares of Class A common stock expected to be held by the settlement recipients, an aggregate of 6,922,566 shares of Class A common stock will be issued in the settlement, according to AMC.
Shares of AMC fell 35.6% Monday following the court’s ruling. The APEs rose 16.3%.
AMC’s plan to convert its APEs to common stock was blocked last month when Delaware Chancery Court Judge Morgan Zurn rejected a settlement that would have allowed the deal to proceed. The stock-conversion plan is part of the movie-theater chain and meme-stock darling’s ongoing battle to eliminate debt.
By proceeding with its stock-conversion plan, AMC will be more resilient and will also eliminate the capital-raising inefficiencies of APE units trading at a significant discount to AMC shares, Aron said in his letter Monday.
Related: AMC, buoyed by its popcorn push, prepares to launch branded premium gourmet candy
The resolution of AMC’s court case removes “a significant overhang” for the company, Wedbush analyst Alicia Reese wrote in a note released Monday. “We expect AMC and APE shares to converge around $3 into the conversion (APEs into AMC),” she said.
The analyst also weighed the impact of AMC’s settlement with shareholders, which was approved by the judge Friday. “AMC’s 519 million shares outstanding will rise to 588 million after paying out the settlement (one share of AMC per every 7.5 shares owned, resulting in a 13% higher common share count),” she wrote. “Then, the reverse stock split (10 to 1) will result in 59 million AMC common shares outstanding, and the 995 million APE shares outstanding will convert to roughly 100 million AMC shares.”
Reese added: “The end result will be 158 million AMC shares outstanding, and APE shares will no longer trade. AMC will then have the authorization to issue up to 550 million additional shares without further shareholder approval.”
AMC may use the opportunity to repay its debt balance while its shares trade at a premium, according to the analyst. “As AMC can only issue up to 550 million shares, AMC would not be able to repay its entire debt balance if its shares dip below $9,” she said. “Should AMC remove substantially all of its debt, it runs the risk of losing its shareholder base after diluting shares.”
Related: AMC’s stock rallies after swinging to profit, boosted by highest quarterly attendance since 2019
Wedbush maintained its underperform rating and $2 price target for AMC. Of eight analysts surveyed by FactSet, three have a hold rating and five have a sell rating for AMC.
