AMC Entertainment (NYSE:AMC) is answering questions on short sellers covering prior to its newly approved conversion proposal.
Shares of the company fell more than -30% after hours on Friday as APE shares rose +30%.
On Monday, AMC stock is down more than -33% while APE is up nearly +18%.
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.”
AMC’s 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.
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.
Also Read: Goldman Sachs Gives AMC a New Price Target of $175
AMC Letter to Shareholders
AMC CEO Adam Aron released a new letter to shareholders on Monday going over the new steps the company will be taking as the proposed settlements come to fruition very soon.
“The steps we will be taking now are shareholder approved and mean the following to AMC:
- AMC will be more resilient: Were it not for our ability to have raised equity over the past three years, AMC simply would not have survived the pandemic-induced decline in our business. Looking forward, the flexibility to raise equity capital at the appropriate times is an absolutely vital tool for any large company, and AMC is no exception.
- We eliminate capital raising inefficiencies of APE units trading at a significant discount to AMC shares: Converting APE units to AMC shares results in a single price for all AMC equity. This single price eliminates the unnecessarily high dilution caused by the lower market price of APE units. For the past full year, for example, to raise cash, AMC could only sell APE units, and they only could be sold at a great discount to AMC shares. With single equity capital structure, I believe AMC will be able to raise equity capital more efficiently and on better terms in the future.
“Some of you fear dilution is a mistake no matter what. You are wrong.
To the contrary, sometimes raising money is an absolute imperative.
Over the past twelve months, for example, AMC raised $418 million of cash through the sale of APE units.
As of the most recent June 30 quarter end, AMC had $435 million of cash on hand.
Can you imagine how dire our circumstances would have been if we hadn’t had the foresight to raise that cash?
Companies that run out of money face financial ruin.
Just ask Cineworld/Regal shareholders, or ask Bed, Bath and Beyond shareholders.
But at AMC at the moment, we have a positive market cap, and we are so much stronger because we raised money along the way.”
Also Read: AMC CEO Speaks on Short Thesis in New Letter
Market News Published Daily 📰
Join the newsletter ⬅️ to receive daily stock market news, business news and updates straight to your inbox; more than 10,000 readers have joined!
THANK YOU to all of our blog sponsors, this year we’ve been able to increase our email sends and signup slots as well as introduce push notifications.
Franknez.com is the media site that keeps retail investors informed.
You can also follow Frank Nez on Twitter, Instagram, Facebook, or LinkedIn for daily news and updates on your favorite stories.
Become a Sponsor for only $1/mo.
- Gain access to EXCLUSIVE FrankNez articles you won’t find here.
- Become part of a private and safe Discord community, just for retail investors.
- Get drawn at the end of the year for holiday giveaways.
Recommended For You ✨
About The Author
This is not going to end well for both parties. Retail had the power to save AMC, they also have the power to shut it down.
The Q&A from AMC is very telling. Basically the shorts won’t cover and there will be FTDs again just like with APE and we all know how that turned out. Prepare for this stock to be shorted from 30 dollars to 5 within minutes and AA not paying off any debt.
From a short seller perspective, would you want to close your position before the R/S or afterwards? If you close afterwards, you might face higher margin requirements and higher risk with a smaller float. If people don’t sell after conversion, would the CTB rise? You would have to put your faith on AA and company that they won’t starting diluting right away but in a control manner or seek better bargains for company to issue new shares at a higher price. Given that AA and company now have the tools to work with raising capital confirmed, I don’t believe he is forced to sell right away but actually wait until a better deal comes around. The bankruptcy pressure is removed so company is in a better position to negotiate than before. Of course, short term benefit goes to company but not to shareholder. Real shareholder value is either long term value or from shorts covering.
Shareholders that purchased shares at $55 per share supporting AMC and there are many of them are absolutely fucked. I own 2200 shares. Someone please tell me how a reverse split benefits the Apes that saved AMC? My portfolio will dwindle to 220 shares. Adam Aron is s con man.
Leave your thoughts below.