In a strategic maneuver preceding the anticipated conversion of its preferred “APE” shares into common stock this Friday, leading exhibitor AMC Entertainment successfully carried out a 1-for-10 reverse stock split this morning.
The reverse split, a planned step by AMC, resulted in a 25% decline in the value of AMC shares during midday trading. Market activity surged to five times the normal levels, reflecting the significant interest in the development. Under the terms of the reverse split, existing investors within the movie theater circuit will receive one share for every ten shares they previously held. This action inherently causes an automatic increase in the share price, a common outcome of reverse splits. While reverse splits are often regarded as potentially risky decisions made by companies aiming to reinvigorate their stock value, AMC’s shares, which had lingered around the $2 range recently, now stand above $14 due to the split. However, investors continue to harbor concerns about potential dilution due to the impending APE swap.
In the wake of the extended closure of theaters amid the COVID-19 pandemic, AMC Entertainment emerged as a notable meme stock, buoyed by a surge of retail investors leveraging platforms like Reddit to collaborate on their investments in struggling legacy corporations. Transitioning from a shareholder landscape primarily dominated by private equity firms, AMC now finds its ownership predominantly in the hands of individual investors. Although the meme stock phenomenon shielded AMC from the fate suffered by competitors such as Cineworld, the parent company of Regal Cinemas, which faced bankruptcy, CEO Adam Aron recently voiced public apprehensions regarding liquidity challenges. The company shoulders a substantial total debt of $9.5 billion.
Since a pivotal ruling by a Delaware Chancery Court judge greenlit the conversion of APE units into common AMC shares, the value of AMC shares has experienced a continuous descent. Following the court’s decision, share prices plummeted to their lowest point since 2021. The APE initiative, christened after the moniker “ape” used for investors (attributed to Aron as “The Silverback”), failed to deliver the expected boost as shares witnessed a decrease in value ahead of the conversion. Today, APE shares, which debuted on the public market a year ago and have dwindled to a fraction of their initial value, endured a 19% drop with trading volume quadrupling the average.
Respected analyst Eric Wold from B. Riley, known for his bullish stance on the exhibition sector as a whole, offered insight in a recent report to clients. He noted that the increasing correlation between the trajectories of AMC and APE shares signals a positive trend. This alignment could suggest that investors are beginning to look beyond the short-term concerns regarding dilution and instead are focusing on the prospects of AMC leveraging its access to additional equity. This potential might manifest in meaningful debt reduction and strategic expansion into high-growth sectors through acquisitions, Wold conveyed. Despite the current adjusted EBITDA multiple on AMC shares being notably higher compared to historical levels and industry peers, Wold anticipates that the company’s management will harness this position to its advantage by pursuing acquisitions using a relatively cost-effective currency.
AMC Entertainment Holdings Inc
14.11 USD
−5.49 (28.01%)today
