AMC Stock (NYSE:AMC)
AMC Entertainment Holdings Inc. is a well-known movie theater company in the United States of America, and it has been in business ever since 1920. The AMC Theatres brand, which this firm owns and operates, has more than 900 sites in countries all over the world. Nonetheless, the COVID-19 pandemic had a substantial impact on the operations of the corporation due to the fact that movie theaters were forced to close for a number of months, which resulted in a decrease in revenue. Retail investors became interested in AMC’s shares after learning about the company’s financial difficulties. These investors took to social media sites like Reddit to discuss and promote the stock, which resulted in a significant increase in the price of the stock.
Entertainment provided by AMC stock (NYSE:AMC) dropped by 24% in early trading on Tuesday, but the movie theater operator’s preferred shares rose by almost 20% after the company announced it had reached a resolution with shareholders regarding its planned stock conversion.
The settlement makes it possible for the firm (NYSE:AMC) to carry out its plan to convert its AMC Preferred Equity, or APE, units (APE), into shares of common stock and brings it one step closer to completion.
When the company had given each AMC shareholder one APE unit in exchange for each common share they owned, trading in APE units began in the month of August. However, APE units have been trading at a significant discount because, at the moment, it is not possible to convert them into AMC shares.
The AMC stock price is now hovering slightly above $5, and it is expected that the APE units will open on Tuesday at around $1.80. Since the settlement “clears the decks” for the conversion, Riley Securities analyst Eric Wold stated that he anticipates the values of APEs and AMC shares to become more comparable to one another.
Wold stated that he will not change his rating of AMC stock from “neutral” and will not change his price objective from $4.50 “until the final clearance is granted and the conversion occurs.” In addition, he stated that the conversion would open the door for the possibility of a “major stock offering,” which would significantly cut down on or eliminate the company’s debt.
The shareholders voted in favor of the proposal one month ago, but it has since been challenged in court due to the fact that it also calls for an increase in the total number of authorized shares as well as a reverse stock split of 10 to 1.
A shareholder group filed the lawsuit, arguing that the action reduced the value of their existing common stock without providing any compensation in exchange. In accordance with the terms of the settlement, which were disclosed in a filing made by AMC late on Monday night, holders of common stock will be entitled to receive one share for every 7.5 shares held following the implementation of the reverse stock split. The payout would amount to around 4.4% of AMC’s total stock, which is equivalent to 6.9 million shares.
In a separate release issued late on Monday, attorneys for the plaintiffs projected that, as part of the settlement, common stockholders would be entitled to receive shares with a value of more than $100 million.
Plaintiff lawyers from Bernstein Litowitz Berger & Grossmann, Grant & Eisenhofer, Fields Kupka & Shukurov, and Saxena White said in a joint statement that the settlement “provides investors with additional shares in satisfaction of their voting claims.” This also enables the company to move forward with its plan to pay down its debt.
The Agreement
Early in the month of March 2021, AMC made public its agreement with Mudrick Capital Management to issue and sell 8.5 million shares of Class A common stock. The transaction was publicized by AMC. The agreement stated that the shares would be sold to Mudrick at an asking price of $27.12 per share, which was considerably higher than the price that was prevailing on the market at the time. A provision to convert the shares to ‘APE’ shares were also included in the transaction. This provision would grant Mudrick the ability to convert the shares to Class A common stock at any time.
Impact on Retail Investors
The transaction has had a substantial effect on ordinary investors, with many voicing concerns about the prospects of the stock going forward as a result of the merger. Some investors are in a state of panic as a result of the sudden drop in the price of the stock because they are concerned that the value of their investments has been significantly diminished. On the other hand, there are analysts who believe that the recent dip in the stock price may only be a temporary setback and that the fundamentals of the company continue to be good.
The recent transaction that took place between AMC and Mudrick Capital Management has had a material effect on both the stock price of the firm and the sentiment of its shareholders. Investors are concerned because they do not fully understand what ramifications the conversion of shares to ‘APE’ shares will have because they do not know what the effects will be. However, opinions among industry experts are still mixed about the long-term effects of the purchase, with some feeling that it has the potential to supply the struggling company with much-needed liquidity.
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