Shares in AMC Theatres fell on Monday following a court ruling that allowed parent company AMC Entertainment Holdings to proceed with a revised plan to convert AMC Preferred Equity Units (APEs) into common shares. The ruling, made by Judge Morgan T. Zurn of the Court of Chancery in Delaware, approved a settlement that had been revamped by AMC Theatres after an earlier settlement was rejected. The previous settlement would have allowed AMC to continue selling stock to reduce its high debt.
The court’s decision led to a convergence of the prices of AMC’s common shares and APE units, as retail investors had shorted the higher-cost common shares as part of an arbitrage trade. As a result, shares in parent company AMC Entertainment Holdings fell nearly 34% to $3.50, while the price of APE units rose 17% to $2.08.
The court ruling came after AMC Theatres CEO Adam Aron emphasized the importance of the APEs-to-Stock conversion plan for the company’s survival during an analyst call discussing the company’s latest financial results. In late 2022, AMC raised $110 million by selling APE units to Antara Capital, LP, in order to pay down debt. The APEs-to-stock conversion plan faced opposition from retail investors who believed it would dilute the company’s stock and decrease its overall share price.
AMC became popular among retail investors in early 2021 when it appeared to be on the verge of bankruptcy due to the impact of the pandemic on movie theater chains. The stock surge during that time allowed AMC to strengthen its financial position by selling shares and repurchasing debt. However, as the stock value returned to normal levels, AMC struggled to continue raising funds to support its operations. The Delaware Court judge had previously prevented the conversion of APE units into AMC common shares, but the recent ruling cleared the way for the conversion to proceed.
Related Post
During the analyst call, Aron stressed the need for AMC to raise fresh capital to improve its balance sheet and reduce overall debt. Over the past year, AMC raised $418 million in new equity and retired $548 million of debt by creating the APE units for the financial markets.
Aron also addressed the criticism from retail investors regarding the APEs-to-stock conversion plan. He acknowledged that AMC faced liquidity issues in the short term and that overcoming obstacles and hurdles would not be easy. This message was likely to be met with resistance from meme-stock investors who had supported the company in the past.
In conclusion, AMC Theatres experienced a decline in share prices following a court ruling that allowed the conversion of APE units into common shares. The court’s decision, which came after a revised settlement, led to a convergence of prices between the two types of shares. AMC Theatres CEO Adam Aron emphasized the importance of the conversion plan for the company’s survival and the need to raise fresh capital. Despite opposition from retail investors, the court ruling cleared the way for AMC to proceed with its plan to strengthen its financial position and reduce its debt.
