Shares of AMC Entertainment Holdings Inc. experienced an impressive rally on Tuesday, increasing by 8.4%. This follows a significant drop of more than 35% on Monday, which occurred after the Delaware Chancery Court approved the company’s revised stock-conversion plan.
The movie theater chain, widely known as a meme stock favorite, observed a 4.8% rise in its AMC Preferred Equity (APE) units after Monday’s session ended with a 16.3% increase.
AMC’s initial plan to convert APEs into common stock faced opposition when Delaware Chancery Court Judge Morgan Zurn rejected a settlement aiming to proceed with the deal. The stock-conversion plan is part of AMC’s ongoing efforts to eliminate debt.
On Friday, the court finally approved AMC’s revised plan to convert APEs into common stock. This marks a significant milestone for the company as it will now be able to access additional equity capital.
AMC CEO Adam Aron expressed optimism about the development in a letter to shareholders on Monday: “AMC should now be able to raise additional equity capital. We can use this access to equity capital to shore up our cash reserves, pay down debt, invest in growth initiatives to strengthen our operating profitability, and pursue transformative merger and acquisition opportunities.”
Wedbush, an analyst firm, commented on the court’s ruling, stating that it removes “a significant overhang” for AMC. Wedbush analyst Alicia Reese predicts that AMC and APE shares will converge around $3 as the conversion of APEs into AMC progresses.
Related: What’s next for AMC after court approval of revised stock-conversion plan?
AMC Shares Decline After Revised Stock-Conversion Plan Approved
AMC, the well-known theater chain, has seen a tumultuous journey over the past few years, transitioning from a struggling victim of the pandemic to a remarkable phenomenon in the world of meme stocks. Similar to GameStop Corp., AMC got caught up in the trading frenzy driven by social media in early 2021. Capitalizing on the significant surge in its share price, AMC took advantage of the situation by raising $917 million through equity and debt markets in January 2021. At that time, CEO Aron confidently stated that any concerns about imminent bankruptcy were completely unfounded.
In light of its meme stock status, AMC managed to secure an impressive $1.8 billion for various investments. One such investment was a stake in Hycroft Mining Holding Corp., a gold and silver miner operating outside AMC’s primary business realm.
Despite this positive news, AMC’s stock has experienced a 9.7% decline in 2023, while the APEs (AMC Purchasing Executives) have surged by an impressive 53.9%.
Going forward, it is crucial for AMC to make the most of its current position. Once the conversion of APEs is finalized and the reverse stock split is completed, AMC will gain the freedom to issue up to 550 million additional shares without requiring further approval from shareholders. In light of this, industry experts believe it would be wise for AMC to utilize this opportunity to repay its outstanding debt while the company’s shares are trading at a premium level.
AMC’s CEO acknowledges that while the company is thriving at the box office, it continues to face ongoing liquidity challenges. However, with careful strategizing and intelligent financial decisions, AMC can overcome these hurdles and ensure a prosperous future.
AMC Shares Experience Significant Decline Following Approved Stock-Conversion Plan
After receiving court approval for its revised stock-conversion plan, AMC witnessed a considerable decline of 27% in its shares. This setback comes at a time when experts suggest that AMC should take advantage of the situation by repaying its debt while its shares remain at a premium level.
AMC’s journey has been nothing short of a rollercoaster ride in recent years. Initially struggling due to the adverse effects of the pandemic, AMC later became a prominent figure in the meme-stock phenomenon, much like GameStop Corp. In January 2021, AMC successfully raised $917 million by capitalizing on the soaring value of its shares. This achievement alleviated any concerns about imminent bankruptcy, according to the company’s CEO.
The meme-stock status served as a catalyst for AMC’s financial success, allowing the company to secure an impressive $1.8 billion for strategic investments. Notably, AMC acquired a stake in Hycroft Mining Holding Corp., a gold and silver miner operating in a different industry from AMC’s core business.
Despite these positive developments, AMC has experienced a 9.7% decline in its stock value this year, while APEs have witnessed a significant surge of 53.9%.
While AMC’s box office performance remains exceptional, the company continues to face ongoing liquidity challenges. With the implementation of sound financial strategies, AMC can navigate these obstacles and secure a prosperous future.