Adam Aron is addressing shareholders on AMC Entertainment’s (NYSE:AMC) upcoming reverse stock split, which has been temporarily denied by a judge in court.
“We could be seeing an indication that the judge wanted the timeline to more fully run its course vs. rushing the conversion process”, said Wall Street analyst Eric Wold.
An AMC reverse stock split seems to still very well be on its way due to more than 87% of shareholders approving the proposal; however, its process is momentarily on hold.
Despite majority of shareholders voting ‘yes’ for a reverse stock split and APE conversion, there are investors who have been vocal about their concerns with the proposals.
But CEO Adam Aron says investors have absolutely nothing to worry about.
Today we’re breaking down what the CEO is saying about AMC’s reverse stock split and what it could mean for shareholders.
Adam Aron on Reverse Stock Split (Update)
AMC CEO Adam Aron reads your comments and concerns on social media.
On Sunday, the CEO made the following statement:
“Some misunderstand the 1-for-10 reverse stock split, approved by 87% of March 14 votes, saying we are “stealing 90%” of your shares. You forget that the share price rises 10-fold at that time. EXACTLY the same as trading ten $1 bills for one $10 bill. Either way, you have $10.”
Investors are questioning why the reverse stock split in the first place if ‘nothing’ truly changes.
“In your comments, some fear that after a RS, short pressure could cause price to go back down. But you neglect that it is EVERY bit as easy to short a stock priced at $3.00 as it is on a stock priced at $30. A RS itself has NOTHING to do with any subsequent prices afterwards,” said the CEO on Twitter.
Here are just a few of the things that investors have pointed out in regard to the RS.
What Shareholders Should Know
➡️ While the CEO is right that the value (on paper) won’t change, market conditions today have been incredibly biased towards the downside and have been ever since AMC almost filed for bankruptcy in 2021 — we’ve seen AMC’s share price plummet from insiders selling, as well as institutions heavily shorting the stock.
➡️ On the other hand, AMC’s share price will now have to rise 10 times more from where it trades at the time of the reverse stock split in order for shareholders to break even or become profitable again.
➡️ AMC is currently trading at $5.05. Say an investor breaks even at $12, $22, $33, or $44 per share pre-RS. In a reverse stock split, AMC’s price would be at $50.50, but investors would have 10 times less shares which means the value of their portfolio would be the same. Those who would have broken even at $12, $22, $33, or $44 (ex.) would now break even at $120, $220, $330, and $440 per share with a reverse stock split.
➡️ For AMC Entertainment to trade at these numbers, big liquidity that can override heavy dark pool volume must come into the market first, much larger than the volume we saw in 2021 when shares rose to an all-time high of $72 per share.
Can AMC reach $120-$440 or more?
Absolutely, but the question is why hasn’t it prior to this reverse stock split?
The answer remains the same post a RS — hedge funds and market makers have been suppressing the stock’s true demand and shares from rising.
Liquidity in today’s market has also dropped drastically compared to the heights of the market in 2021.
Ultimately, it’s going to be big buying pressure like we saw in 2021 to trigger price action and short sellers to close.
Final Thoughts on Adam Aron’s Take on AMC’s Reverse Stock Split
An AMC reverse stock split is going to help the company tremendously!
The company will be able to raise a lot of capital very quickly and use it to pay down its debt or towards other innovative initiatives.
However, a risk AMC CEO Adam Aron is not discussing, which is very important to shareholders, is how attractive the stock may or may not be post a reverse stock split.
Many investors purchased the stock at $40, $50, $60, and $70 per share, expecting shares to continue rising.
Will shareholders buy a $50 share while having 10x less shares in efforts to drive the stock up again?
Or is it more attractive to buy shares at a lower price with bigger volume due to stocks being much more affordable?
Because if there’s one thing we learned from 2021 it’s that big buying pressure is what triggered shares to rise, ultimately squeezing a percentage of short sellers from their positions.
AMC’s reverse stock split has already been approved, but I’m curious to understand your thoughts on the CEOs comments – leave a comment down below.
Related: AMC Gets Back on The Threshold Securities List
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