AMC Entertainment (NYSE:AMC) shareholders have now saved the movie theatre company again after two major proposals were finally passed following an exhausting lawsuit.
A reverse stock split and conversion of APE shares to common stock will now go into effect later this August.
AMC’s 1-for-10 reverse stock split will go into effect on Thursday, August 24.
The conversion of APE shares into AMC common stock will occur the following day, Friday August 25.
The litigation settlement will then take place on Monday, August 28.
CEO Adam Aron says these dilutive proposals will help AMC Entertainment raise plenty of cash to survive another catastrophic event.
“AMC must be in a position to raise equity capital. I repeat, to protect AMC’s shareholder value over the long term, we MUST be able to raise equity capital.
That is especially the case now with the added uncertainty caused by the writers and actors strikes, which could delay the release of movies currently scheduled for 2024 and 2025.
If we are unable to raise equity capital, the risk materially increases of AMC conceivably running out of cash in 2024 or 2025, or of AMC being unable to satisfactorily refinance and stretch out the maturity of some of our debt (which is required of us beginning as early as 2024.)
The risk of financial collapse is not whimsical. Cineworld/Regal, the second largest movie theatre chain in the world, fell into bankruptcy and their equity holders were essentially wiped out. Bed, Bath and Beyond which was viewed as the third most watched meme stock, also fell into bankruptcy and their equity holders also were essentially wiped out.
Fortunately, at AMC, we have been much smarter, much more agile and much more skillful. We have risen to every Covid challenge heretofore, and I have every confidence in our continued ability to successfully navigate through these complicated times,” Adam Aron said in a July letter.
Will Short Sellers Cover Prior to The Proposed Rules?
AMC published a statement answering a few questions shareholders might have in regards to the new proposed rules.
Will short sellers be required to cover their positions before the Reverse Stock Split and Conversion?
According to AMC’s new 8-K filing, AMC expects that the deliveries under stock borrowing arrangements will be adjusted in the regular way to account for the Reverse Stock Split or, in the case of contracts on APEs, the Conversion.
However, AMC states that it “does not determine and is unable to provide interpretive advice on the impact of these events on the contractual terms governing stock borrowing arrangements.”
How will short sellers be affected by the Litigation Settlement Payment?
“AMC does not determine and is unable to provide interpretive advice on the impact of the Litigation Settlement Payment on the contractual terms governing stock borrowing arrangements.”
Will there be large failure-to-deliver (“FTDs”) like when the APE was distributed?
AMC Entertainment states that while they cannot predict the trading impact of these corporate events, given the significant transactions that will occur over successive trading days, it is possible there will be large FTDs like when the APE was distributed.
In 2021, investors saved AMC Entertainment when they swarmed the market and began to purchase shares of the heavily shorted stock.
The movie theatre company was able to raise billions of dollars and take bankruptcy off the table, only moments before short sellers got away with non-taxed capital gains.
Adam Aron Speaks on Reverse Split
While these dilutive proposals are going to provide AMC Entertainment with a tremendous arsenal to raise capital and pay down their debt, there’s a lot controversy on how these proposals will affect shareholders moving forward.
Many shareholders don’t anticipate any negative effects whatsoever, but, it ultimately comes down to why an investors would be invested today in the first place.
AMC Entertainment (today) is the best investment for the loyal investor that has no problem allocating their money into a vehicle that will use it for their own fundamental benefit.
This type of investor is likely looking at AMC as a long term investment that will one day yield profits back to them; in other words, there is a strong conviction and genuine care and love for the company itself.
Short squeeze (only) investors might see this a little differently.
The CEO has made it clear that pricing may still (and likely) come back down post a reverse split, as seen with MULN and BBIG.
Short sellers will short the stock — what will keep a stock rising is a tremendous amount of buying pressure, which may be less likely post a reverse split when the stock begins to trade significantly higher than today’s more affordable and lower levels.
The best time for shareholders to have initiated a short squeeze was at all-time low prices when shares were more affordable to more investors.
“I keep hearing from some of you that with the reverse stock split, we are “stealing” 90% of your shares. If someone takes ten $1 bills from your left hand but puts one $10 bill in your right hand, would you be losing 90% of your money?
$10 is $10, whether it is in the form of ten one’s or one ten. Yes, with the reverse split the share count reduces, but economically shareholders will hold the same proportion as they do currently. What happens after that reverse split occurs is an unknown. The market price of AMC shares could either go up, stay the same or go down. But that is true right now too. Bad actors can attack us after a reverse split, but they can attack us right now too,” said AMC CEO Adam Aron.
However it’s not as simple as replacing ten $1 bills with one $10 bill; stocks work a different way. The number of shares you hold is your multiplying factor as the value of a security rises.
What to Look Out For
If a security rises by $5 per share, there’s not much gain with one share compared to the gains seen with ten shares.
Adam Aron argues that AMC stock may go up or down the same today which means that someone holding ten shares today will in fact have higher gains on a $5 move towards the upside than someone with only one share.
Then there’s another factor that is not being included, how much more the stock needs to rise for shareholders to reach their ‘breakeven’ price point.
That breakeven price point has now multiplied 10x.
So, if a shareholder currently breaks even at $40 per share, the stock would need to reach $400 per share for that same shareholder to breakeven since the value of the portfolio does not change during the split.
If investors couldn’t create enough buying pressure (as seen in 2021) to get AMC’s share price to $400 with price trading at a massive discount pre-split, how will shareholders create enough buying pressure to get AMC’s price at $400 with the stock trading at a much higher price point?
A curious thought don’t you think? But I’d love to hear your genuine thoughts on this as your perspective might help other investors.
Final Thoughts
Movies aren’t going anywhere and AMC Entertainment has proven to Wall Street once again that it can raise money from shareholders at any given moment.
The approved proposals is a massive win for the movie theatre company whether you strongly agree with them or strongly do not.
Identifying why you’re still invested in this company is something that will vary from individual to individual.
Are you invested for a short squeeze? Identify for yourself whether the probabilities of a short squeeze are either stronger than ever, or weaker than ever today.
Are you invested primarily as a fan and supporter of the company? Identify what portion of your finances you’re willing to crowdsource to help the company grow in the future.
Stuck in the middle? Don’t follow others blindly, come up with your own plan and best-case/worst-case scenarios.
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About The Author
People can dprea fud, #fakenews can do the same, the markets, o inancial system is corrupt. SEC. FINRA. DTCC ALL CORRUPT, we don’t get our moass or end up getting fukd. We will walk away from @ceoadam and #AMC , and then will walk away from the corrupt markets, #wdthepeople are tired if your shi, in the en j git a feeling @ceoadam won’t be able to even walk down the street along with corrupt hairsniffers and pedos.
I predict retail investors will be bag holders and stripped of their shares value after they short $AMC back down thus erasing the value of the $APE shares and ultimately bringing it to zero.
This is what’s been happening with Mullen Automotive, unfortunately.
AA is a moron and a crook, it don’t matter wether your a regular investor or a short squeeze investor. Both party’s are here to make money, period end of story. No regular investor is willing to invest just to lose money as amc been going nothing but down. If he keeps diluting then no regular investor with a brain would want to invest in this company just to lose their money.
I agree! Long term investment??? Ask the investors who bought AMC at $55 per share to help save the company if AMC is a good long term investment. Now those shares are down to $3 AND will be diluted. Adam Aron is a corrupt piece of garbage who’s only looking out for himself. He does absolutely fuck all to protect his shareholders.
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