AMC Entertainment (NYSE: AMC) equity lost near 30% over the weekend as APE (NYSE: APE), the preferred equity soared by a similar amount. The basic background here is that AMC Entertainment needs more capital. Which it can gain by issuing more stock of course. But before more can be issued - dilutive in itself equally obviously - it needs to sort out the AMC and APE difference. The preferred stock should convert into common stock - from APE to AMC. But upon what terms?
Well, late Friday the judge overseeing this agreed to the terms on offer. This becomes heavily dilutive for AMC stock and so the price goes down. The terms are better than expected for APE so they go up. “AMC Entertainment stock (NYSE:AMC) slipped 24% after hours Friday -- and AMC Preferred Equity units (APE) jumped 22% -- after a Delaware court approved a revised plan to convert the APEs into common stock. Delaware Vice Chancellor Morgan Zurn had declined to approve a settlement paving the way for the conversion in late July, but late Friday signed off on the newly revised settlement offer.”
AMC Entertainment stock price from Google Finance
We’ve talked before about AMC: “AMC Entertainment (NYSE: AMC) shares leapt some 63% after hours on Friday. Concurrent with this the APE (NYSE: APE), or the AMC Preferred Equity Units, slumped as much as 63% and then largely recovered at the same time. The battle is all about the dilution of the common stock - and how AMC management just lost the latest round in the legal battle over it.” That was the price movement when the conversion terms were denied so it seems fair enough that there’s a reversal when they’re agreed and allowed. “This then leads to the CEO posting the new offer on Twitter. Yep, corporate finance offers in the public square. Essentially, AMC must be able to raise new equity capital. If it doesn't it's likely to go bust - the actors' and writers' strike isn't helping, given the paucity of movies there might be in a year or two. Being able to issue new capital requires cleaning up the capital structure, that in turn almost certainly means some conversion of APE, the preferred equity, into AMC, the common equity. But the conversion of APE would mean substantial dilution of AMC stockholders. And there's the bind.”
To be fair here, whatever happened the AMC stockholders were going to get diluted. The only question all along has been how badly. As the judge pointed out Friday, badly but not as badly as before.
