AMC Entertainment (NYSE:AMC)
After the submission of a proposed binding settlement of a shareholder lawsuit on Monday, which had put a wrench into a rather intricate plan to raise extra cash, AMC stock fell 23.7% on Tuesday, mirroring an after-hours fall on Monday (which would also dilute common stockholders along the way).
The conversion of AMC Entertainment’s (NYSE:AMC) preferred equity units (APE) into common shares has been put on hold while the lawsuit continues. On Tuesday, APE jumped 13.9%.
If the court upholds the settlement, the price of AMC common stock (AMC) and the preferred equity (APE) price will converge toward parity and one-for-one. The current price of AMC common stock (APE) is $3.90, while an APE is $1.69.
And then, AMC would try to have all its APEs converted into common stock, do a reverse stock split of 10 for 1, and then issue new shares of stock to the public to get additional money.
As part of the settlement between AMC and the litigation plaintiffs, the firm has agreed to issue of-record common shareholders one extra share for every 7.5 shares presently owned after the reverse split. B. Riley analyst Eric Wold estimates this corresponds to a total payout of 6.9 million common shares, or around $275 million.
He characterized the sum as “quite little” in exchange for the opportunity to de-lever the balance sheet and explore alternative development avenues.
Wold added, “We continue to see a constructive route for the firm to raise large amounts of cash, especially if the conversion of APE units to AMC common shares is allowed to occur, together with the increase in authorized common shares and 1-for-10 reverse stock split.”
Upon completing all transactions, AMC would have about 156 million outstanding shares and 394 million authorized shares, giving it the capacity to issue stock in the range of $16 billion.
AMC’s market worth barely remained over $2B after Tuesday’s decline.
Until the conversion is finalized, B. Riley’s Wold keeps AMC stock at a Neutral rating and a $4.50 price target but still anticipates a convergence in AMC and APE prices.
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