AMC Entertainment (NYSE:AMC) tumbled 23.7% Tuesday, echoing an after-hours move Monday following the filing of a proposed binding settlement of a shareholder lawsuit that had thrown a wrench into a mildly elaborate plan to raise more funds (which would also dilute common stockholders along the way).
That suit has delayed a plan by AMC to convert its AMC Preferred Equity units (APE) into common stock. APE rose 13.9% Tuesday.
The settlement, if it’s approved by court, paves the way for AMC common shares (AMC) and the preferred equity (APE) to start making their way toward each other, and one-for-one parity, explaining the stark opposite moves. AMC common stock (APE) is now at $3.90, while APEs are quoted at $1.69.
And what would follow would be AMC’s push to convert APEs into common stock, before implementing a 10-for-1 reverse stock split and then an equity raise for more capital.
Now AMC and the lawsuit plaintiffs have agreed that the company will pay of-record common stockholders one additional share for each 7.5 shares they currently own, after accounting for the reverse split. That amounts to a total estimated payment of 6.9M common shares, or some $275M, B. Riley analyst Eric Wold figures.
That’s a “relatively small payment” for the chance to de-lever the balance sheet, and perhaps pursue other growth strategies, he added.
“Should the conversion of APE units to AMC common shares be permitted to proceed -— along with the increase in authorized common shares and 1-for-10 reverse stock split -— we continue to see a positive path for the company to raise significant amounts of capital,” Wold said.
After all the transactions, AMC’s outstanding shares would come to about 156M, with 394M authorized shares that could be issued by the company to raise equity — the potential for as much as $16B, he noted.
After Tuesday’s drop, AMC’s current market capitalization is hanging on a hair above $2B.
B. Riley’s Wold is maintaining a Neutral rating and a $4.50 price target on AMC until the conversion actually goes through, but still expects the prices of AMC and APE to converge.
Meanwhile, Seeking Alpha analysts and Wall Street analysts each rate the stock a Sell, while Seeking Alpha’s Quant Ratings call AMC a Hold.