AMC Entertainment (NYSE:AMC)
Amidst some recently crazy trading in the theater company’s stock and its new bonus preferred shares that have made their debut, investors in AMC Entertainment (NYSE:AMC) are hoping that the company’s motto, “Apes together: Strong,” will prove to be accurate.
AMC Entertainment (NYSE:AMC) had its most significant decline in more than a year when it plunged 38% right after the market opened, and it was still down 37% after an hour of trading. However, the newly issued AMC Preferred Equity shares (APE) of the firm are currently trading at a price higher than premarket, at $8.68 (an estimated gain of 25%).
During the early trading, AMC and APE were halted multiple times due to the high degree of volatility.
After the market closed on Friday, APE was distributed as a share dividend to AMC Entertainment (NYSE:AMC) investors, each receiving one unit of APE. According to the explanation given by AMC’s Chief Executive Officer Adam Aron, the combined market value of the two shares is $19.86, which is higher than AMC’s closing price of $18.02 on Friday.
The APE shares each have a par value of $0.01, but the possibility that they will one day be converted into an AMC common share makes their valuation more complicated. This possibility foreshadows the possibility of significant stock dilution for the AMC company. AMC may also choose to issue more APE shares to raise additional money.
Before Aron became CEO of AMC Entertainment (NYSE:AMC), the company had access to a market mechanism where the APE idea originated. Last year, executives at AMC attempted to execute another capital raising of 25 million new shares; however, AMC had already been permitted to issue preferred stock to generate funds; therefore, their attempt was unsuccessful.
According to the observations of industry experts, the most logical approach for AMC to take if it engages in prospective fund-raising is to go the preferred-stock route.
Eric Wold, who works for B. Riley, described it as an “attractive” way to get funds for deleveraging and growth. Michael Hickey, who works for Benchmark, suggested it be deployed “opportunistically.” Others have brought attention to the possible cost to the capital structure, such as MKM’s Eric Handler, who has issued a price objective of $1 for AMC and questions how dilutive potential future issuances and conversions would be.
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Author Shariq Khan 
