AMC Entertainment’s stock falls before the bell after the company announced a plan for a reverse stock split and a $110 million sale of ‘APE’ shares to Antara Capital

Shares in top exhibitor AMC Entertainment fell 25% before today’s market open after the company announced it would conduct a reverse stock split and raise $110 million from the sale of “APE” shares.

The often-volatile stock, which has seen meme trading rise to nearly $60 in 2021 despite major disruptions in cinema attendance, recently traded in the $5 range, falling below $4 before the opening bell on December the lowest since the 2020 pandemic lows.

The company packed several news into a press release. It said the board would call a special meeting for holders of both AMC common stock and APE stock, with votes being counted. On the agenda is a proposal to increase the authorized number of AMC common shares to enable the conversion of APE units into AMC common shares and another plan to issue a 1:10 split of AMC common shares at commencement to reverse. A final proposal to be presented to shareholders is the “Adjustment of Authorized Common Shares” to allow the Company to issue additional common shares, as is currently possible with APEs.

CEO Adam Aron said the moves are intended to “simplify our capital structure” and achieve greater parity between AMC common stock and APEs. Reverse splits reduce the total number of shares outstanding and are typically carried out by companies that want to avoid delisting or improve their reputation with investors.

Another headline in the press release was AMC’s disclosure that it will raise $110 million in new equity through the sale of its recently issued “APE” preferred stock to Antara Capital. The two parts have a weighted average price of 66 cents per share. APEs, which the company introduced earlier this year, closed at 68.5 cents on Wednesday.

As part of the equity deal, Antara, which already has AMC debt, will exchange $100 million of debt maturing in 2026 for about 91 million APE units. By eliminating $100 million in principal debt, AMC said future annual interest expense would be reduced by about $10 million.

Antara has agreed to hold its APE units for up to 90 days and vote them on the proposals at the special meeting, the company said. AMC added that it will limit the amount of additional equity it can raise before the special meeting.

“AMC’s ongoing efforts to raise capital and strengthen its balance sheet are serious,” said CEO Adam Aron. “It is clear that the existence of APEs served exactly their purpose. They have enabled AMC to raise much-welcomed cash, reduce debt and therefore reduce our balance sheet and enable us to pursue potential mergers and acquisitions. Given the consistent trading discount we regularly see in the price of APE units relative to AMC common stock, we believe it is in the best interest of our shareholders that we simplify our capital structure and thereby simplify the market share of APE units, remove applied discounts . “

Aron claimed the company’s liquidity was “significantly improved” and the balance sheet “strengthened” as a result of the moves. A “growing” treasury in 2023, he added, would benefit the company.