After devaluing the shareholders of its APE stock, AMC is now resorting to gimmicks to give the illusion of value

This is not investment advice. The author has no position in any of the stocks mentioned. has a disclosure and ethics policy.

With the end of the calendar year just around the corner, typically, C-suites across corporate America are seeing a sharp drop in activity. However, this annual ritual doesn’t seem to be taking place at AMC Entertainment headquarters this year, as the company continues to roll out new initiatives with strong financial implications.

At the beginning of this week, AMC revealed that it raised total cash proceeds of $153.2 million by selling 123.2 million units of AMC Preferred Equity (APE) in the fourth quarter of 2022. As a refresher, AMC declared a special dividend while revealing its earnings for the second quarter. From 2022. These dividends took the form of preferred stock, with 1 APE awarded for each common share of AMC. Each APE unit entails the same rights as a company’s common stock.

AMC described the APE units as a panacea of ​​sorts for chronic liquidity problems and high debt burdens. However, by the start of this week, the company had only managed to raise total cash proceeds of $162.4 million by selling a total of 125.9 million APE units, which equals about 3.24 percent of its total debt stock of approximately $5 billion. Also, to achieve this small cash raise, AMC diluted the shareholder value of APE stock by a whopping 88 percent (as of the beginning of the week).

This brings us to yesterday when AMC made three major announcements:

  • The company raised an additional $110 million by selling 72.6 million shares of APE stock to Antara Capital, which equates to a weighted average price of $0.660 per share.
  • The company achieved a $100 million reduction in the principal amount of 2026 AMC notes by swapping 91 million APE units with Antara Capital, resulting in annual interest cost savings of $10 million. When other debt reduction efforts are taken into account, AMC has now managed to reduce its total debt burden by $280 million in 2022.
  • AMC has indicated that it will seek shareholder approval to convert the APE units into common stock and to carry out a ten-to-one reverse stock split.
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By allowing shares of APE to be converted into common shares of AMC, the company has incentivized arbitrage deals to try to narrow the widening gap between the two equity instruments. However, this move is now insufficient to restore shareholder value.

AMC ended the third quarter of 2022 with $895.8 million in available cash, including $211.2 million in undrawn revolving credit facilities. The company expected, according to its press release at the beginning of this week, to end the fourth quarter of the current year, with liquidity ranging between $725 million and $825 million. If we factor in the $110 million in additional capital raised from Antara Capital, AMC’s year-end liquidity, at maximum, would still be $935 million. Meanwhile, the company continues to burn cash at an average of $226 million per quarter, based on the $1.13 billion that AMC burned over the past five quarters. Given that the recession is largely set to begin in 2023, some analysts think the entertainment giant may not have enough cash to survive, thus limiting growth prospects for AMC’s common shares.

Thus, with the upside determined for AMC common shares, APE shares can only hope to rise to the company’s current share price level. AMC’s common stock is now trading at $4.91. Even if APE shares reached that price level before the potential conversion, it would still have a loss of more than 18 percent compared to its initial price of about $6 per share.

Finally, perhaps realizing that it would never be able to make APE shareholders “full,” AMC announced a possible reverse stock split as a gimmick to create the illusion of value creation for its shareholders.

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