Former meme stock AMC has had a really, really rough month. And a rough six months. And a rough year. And a rough 5 years. Despite various pops in the share price, the movie theater stock is down on almost every major timeframe.
Source: Google
Despite the rough patches and overall poor performance, the company’s financials have been on the path to improvement ever since 2021’s meme-stock mania, helped in large part by CEO Adam Aron, who has pushed forward several large equity raises.
Generally, equity raises add to the pool of available shares, diluting the value of the shares in exchange for providing additional cash to the company (when shareholders purchase those shares).
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As the 2021 meme stock gains fell off, Adam Aron decided to put some new packaging on an old idea in the form of APE units. APE units are not common stock, they’re preferred stock. This solves a loophole for AMC — to issue more common stock the company needed shareholder approval. That was becoming hard to get.
The company didn’t need shareholder approval to issue preferred stock, and that’s exactly what they did. Through clever marketing (ie: Calling the preferred stock “APE units,” a reference to the self-proclaimed title of AMC stock fans) Aron sold AMC shareholders on the idea, and the stock rallied on the news. Thus: APE was born.
That rally was interesting, considering APE units are truly just another form of dilution for AMC shares. This is something we already knew, which is being confirmed by Tuesday’s AMC announcement. That announcement: AMC plans to convert APE units into shares of common stock.
On the bright side, this move will dramatically improve AMC’s financials, potentially eliminating AMC’s debt burdon altogether. On the downside, this represents a major dilution for the stock — and shareholders are reacting big time. Shares of AMC fell more than 20% on Tuesday following the news. However, in a twist of events, APE units rose roughly 10% around the same time period.
Another crucial piece of the news:
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AMC Stock Split (10-to-1 Reverse Split)
In a normal stock split, shares are divided in value by a set amount, and the share count is multiplied by the same amount. The total value doesn’t change. AMC’s reverse stock split is going to be different.
First, it’s a reverse 10-to-1 split. That means means rather than dividing the share price, the share price will multiply — however, in exchange, the share count will be divided by 10. Secondly, through a settlement with AMC shareholders, AMC has sweetened the deal, offering one additional share for every 7.5 shares held after the reverse stock split. The payment is expected to represent more than $100 million dollars in added shareholder value.
In short: You won’t have to do anything — on the day of the split, you’ll have a “free” share in value for every 7.5 shares owned added into the total value of your AMC stock. It’s a well-deserved bonus for the shareholders who are responsible for single-handedly saving a the debt-plagued movie theater chain.
The Bottom Line
APE units were created in August as “preferred stock,” but they’re likely to converge with AMC common stock. If that happens, it’ll represent a massive financial gain for the company, at the cost of share value. AMC is attempting to address that by initiating a 10-to-1 reverse split and offering an additional share for every 7.5 shares owned by AMC shareholders.
Adam Aron and AMC hope that these moves can help breathe life into the beaten down meme stock.
