AMC stock declines and preferred units jump after conversion adjustment

Shares of AMC Entertainment fell 35% in pre-market trading Monday amid concerns that approval of a revised shareholder settlement would allow the company to issue more shares to raise capital, a move that would dilute the value of each common share.

Common shares fell to $3.45 in trading before the bell. Preferred stock units called “APE,” which trade at a significant discount to common stock, jumped 27.5% to $2.27.

Under the settlement, AMC will provide an estimated $129 million in stock to common shareholders to settle potential legal claims related to the stock conversion plan.

The approval comes just three weeks after a judge rejected an earlier version of the settlement.

The ruling clears the way for the company to follow through on its plan announced in March that includes converting preferred stock units into common stock, a one-for-ten reverse stock split, and potentially selling more shares as it tries to pay back some $5.1. billion in debt.

Wedbush analysts said they expect AMC and APE shares to converge around $3 a share before the conversion, and to $30 after the reverse split.

“If AMC substantially eliminates all of its debt (by increasing equity), it risks losing its shareholder base after equity dilution,” Wedbush analysts said.

CEO Adam Aaron called the ruling an “important milestone” for the company on Twitter and said details and a timeline for the APE unit conversion plan will be announced on Monday.

AMC was at the height of its stock meme mania in 2021 and the company launched preferred “APE” units as a special return last year in reference to retail investors who call themselves “monkeys” on social media like Reddit and Twitter.

Aaron said the company has raised $418 million in cash by selling APE units over the past 12 months.

AMC was sued earlier this year by some investors who alleged that the company was trying to circumvent the will of common stock holders who opposed the company’s dilution of their holdings.

The world’s largest movie theater chain last week reported surprising quarterly earnings as theaters gradually rebounded after an uneven rebound from the pandemic’s lows. (Reporting by Medha Singh in Bengaluru; Additional reporting by Akash Sriram; Editing by Soumyadib Chakrabarti)