Recently, a pension fund filed a lawsuit against Adam Aron, its entire board members, and the company itself asking to delay the AMC and APE merge.
The Allegheny County Employees’ Retirement System is seeking a temporary restraining order against a planned March 14 conversion vote.
The pension fund asked the Delaware Chancery Court to declare the preferred shares invalid and ban the holders of the preferred shares from voting.
So far, we’ve not received any official statement from AMC or Adam Aron.
“This Action challenges a course of complex and disloyal corporate engineering by the Defendants — described by AMC’s Chief Executive Officer and Chairman, Defendant Adam M. Aron as an exercise in ‘3-D chess’ — devised to achieve a simple aim: eviscerating the voting power of AMC’s Class A stockholders in order to force through approval of a proposed dilutive share count increase that those stockholders repeatedly had rebuffed and were not willing to support at the corporate ballot box,” the complaint says.
The pension fund is scrutinizing AMC Entertainment and its board members for issuing its equity (NYSE:APE) without shareholder approval.
APE debuted in August of 2022, supplying shareholders with one APE share for every AMC share they held.
The strategy was meant to extract a fraction of shareholder’s portfolios to fund the company’s capital pool.
This capital pool would help AMC Entertainment raise cash to pay off debt and for other innovations.
Now, the reason why the company issued APE is because shareholders did not vote ‘yes’ to dilution of common AMC shares.
APE was the loophole for the company to raise capital without the approval of its shareholders; now the CEO and its board members are getting sued.
Why Delay The Process?
It’s been 6 months since the inception of APE at the time of this publication.
So why is the pension fund coming out just now when AMC and APE may potentially merge?
Shareholders suspect the plans to delay an AMC and APE merge vote has to do with a broader picture.
One that has the potential to delay a catalytic short squeeze.
Others believe the AMC and APE merge will completely destroy the short squeeze thesis.
Interactive Brokers Chief Strategist Steve Sosnick says AMC is in a very special situation because of the proposal to merge APE with AMC common shares.
“Right now we’re seeing such a demand to short AMC partly because of its difficulties but partly because of the special situation.
This really is what they were looking for in some ways as the mother of all short squeezes.
The borrow rate, it costs you 700% to borrow the shares overnight — if you can find them,” said the Interactive Brokers Chief Strategist on Yahoo Finance.
The problem right now is that the CEO has not made an announcement regarding the delay, it seems eventually he will have to address it, if delayed at all.
There’s too much uncertainty at the moment to fully understand the mechanics of why this is happening right now.
What We Know About the Possible Merge
What is certain, however, is that an AMC and APE merge will help AMC Entertainment raise big cash again and stay afloat.
The strategy will buy the company time to continue paying off its debt while working towards ending the Wall Street short thesis once and for all.
Fundamentally, it helps the company out more than shareholders know, this is why the CEO urged investors to vote ‘yes’ on all three proposals.
We also know that portfolio value will be unchanged at first, but shorting at the new price may significantly affect retail’s position.
AMC Entertainment stock will also need to be in the several hundreds of dollars for long-term investors who got in at the peak of the runup in 2021 to break even.
However, short sellers are also in a bind because the cost to short AMC stock is over 700%!
It’s still costing short sellers millions of dollars per month to short the stock.
It’s also very possible merge or no merge that we begin to see shorts close their positions.
Shorting the stock is only proving to be more difficult, and there’s only one way out — through a short squeeze.
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