Leading exhibitor AMC Entertainment completed a 1-for-10 reverse stock split this morning, a planned move preceding Friday’s conversion of its preferred “APE” shares into common stock.
After the split, AMC shares were down 25% midway through the trading day, with volume at five times normal levels. The split means investors in the movie theater circuit get one share for every 10 shares they previously held, with the share price rising automatically as a result. Reverse splits are generally viewed as potentially risky moves by companies in need of reviving the price of their stock. AMC shares had been in the $2 range in recent days; factoring in the split, they are now above $14. Investors have continued to express worries about being diluted by the APE swap.
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When Covid shut down theaters for months, AMC Entertainment became one of a handful of meme stocks boosted by a surge of retail investors who used Reddit to co-ordinate their holdings in distressed legacy companies. Once primarily under the control of private equity firms, AMC’s shareholder base is now dominated by individuals. While the meme-stock phenomenon helped AMC avoid the fate of rivals like Regal Cinemas parent Cineworld and others driven into bankruptcy, CEO Adam Aron has recently issued public warnings about liquidity concerns. The company has a hefty total debt load of $9.5 billion.
AMC shares have fallen steadily since a Delaware Chancery Court judge ruled that the conversion of APE units into common AMC shares can proceed. Immediately following the ruling, shares skidded to their lowest level since 2021. The APE initiative, named after the “ape” nickname for investors (Aron is known as The Silverback), failed to provide the boost execs anticipated. APE shares, which are a fraction of their initial value after going public a year ago, have also fallen ahead of the conversion, dropping 19% on four times normal trading volume today.
Analyst Eric Wold of B. Riley, a noted bull on the overall exhibition sector, wrote in a report to clients this week that increasing synchronization between the movements of AMC and APE shares is a positive sign. It could indicate that “investors are beginning to look beyond any potential near-term
dilution and instead focus on the opportunity for the company to utilize the access to incremental equity to both materially reduce debt and strategically expand into higher-growth sectors through acquisitions,” he wrote. “While we understand that some investors may view the current [adjusted EBITDA] multiple on AMC shares as extraordinarily high compared to both historical levels and the company’s exhibitor peers, we expect management to use that to their advantage by pursuing acquisitions with a relatively low-cost currency.”
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