With those objectives played out, AMC decided to simplify its capital structure by converting APEs into AMC shares. In a reverse stock split, the share low volatility option strategies count drops and the share price rises. A 1-for-10 reverse split like AMC’s should slash the share count to 10% and add a zero to the stock price.
While the bottom line impact for AMC of the APE units will not be clear for a while, there are details that investors in both the APE units and the common stock should know now. Here is an overview of how the dividend process works and what shareholders should know. The initial APE units were distributed free of charge, but the company’s filings say it has the right to sell more of the units in the future — without additional shareholder approval. AMC said it is currently authorized to issue up to 1 billion APE units, and that it distributed a little more than half of that total with the dividend. Rather than battle with shareholders over a dilutive AMC stock issue, the company created the APE unit with authorization for 1 billion shares.
- AMC Entertainment Holdings Inc.’s stock fell more than 10% in extended trading on Thursday after the company announced a special dividend in the form of “Ape” preferred shares.
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- She recently upgraded AMC from underperform to neutral and set a price target of $19.
- AMC Theatres CEO Adam Aron isn’t moving away from his very online persona.
AMC on Thursday said it plans to issue a dividend to all common shareholders in the form of preferred shares. This is where the comment on “a currency that can be used in the future to strengthen our balance sheet,” comes into play. While the company has been stopped from issuing common shares, shareholders might be more welcome to dilution in APE shares, thereby creating the ability for the company to issue shares in exchange for cash coming in the door. Another key aspect of the preferred units is that they do not require the consent of holders to issue additional units.
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That included $110 million from AMC’s creditor Antara Capital, LP. Antara also accepted 91 million APE units as payment for $100 million of AMC’s outstanding debt. AMC Entertainment (AMC) has dominated financial headlines for weeks and the good folks of Reddit aren’t to blame. The movie theater company is working through a complex plan to improve its balance sheet and reduce its interest expense burden. The company, which issued an “I own AMC” NFT in January, will also be issuing an “I own APE” NFT to shareholders. While AMC remains a cause célèbre for a vocal community of individual investors, the company’s financial health is a cause for concern, according to data from RapidRatings, a company that assesses the finances of public and private companies.
- These preferred equity units are a workaround, of sorts, and free AMC up to sell additional units of stock as it continues to revive its business after the pandemic.
- “AMC still has an upside-down capital structure that has seen a 400% increase in shares outstanding since the start of the pandemic along with its sizable $5.4bn debt load,” MKM Partners analyst Eric Handler wrote in a note to clients on Aug. 5.
- Although these moves were part of AMC’s plan to avoid bankruptcy, investors have not responded well.
AMC currently has approximately $5.5 billion in outstanding debt, according to Hickey. “We suspect management is targeting leverage at 3x – 4x AEBITDA [adjusted earnings before interest, taxes, deprecation and amortization]. FY24 consensus is for $660M in AEBITDA, which would translate to a total debt target of $2.3B, which would imply a total debt reduction target of $3.2B,” he added.
Back in July 2021, the company had to backtrack on a plan to issue 25 million shares after shareholders caused an uproar on the potential dilution. The discussion ended with CEO Adam Aron commenting on Twitter that they would be cancelling the vote on more shares, along with any such dilution requests for the remainder of 2021. In this case, the preferred stock shares will trade independently of AMC stock at the time of the distribution, with the potential to be converted to AMC shares at a point in the future based on a shareholder vote. This is unique in that most preferred stock don’t have voting rights. With voting rights, holders can choose to vote to convert shares of APE into stock shares (AMC) at a later date.
Banking services and bank accounts are offered by Jiko Bank, a division of Mid-Central National Bank. JSI and Jiko Bank are not affiliated with Public Holdings, Inc. (“Public”) or any of its subsidiaries. None of these entities provide legal, tax, or accounting advice. On the option side, current expirations available prior to the distribution will become non standard, with deliverables of 95%/5% AMC/APE shares. After the distribution, new options chains will be available that will trade based on the post distribution price.
With the potential price of APE in the single digits, it’s unlikely that options will be issued for the APE shares. AMC’s recent history is tied closely to the “meme” stock craze that started with GME in early 2021, along with many other stocks which the market had largely written off like BBBY, BB, best renewable energy stocks FIZZ and others. Retail traders have continued to pile into the “HODL” mentality with day-to-day stock trading volume remaining high – many multiples of pre-2021. Stock price volatility has been digested by the retail following as a short-term hiccup to the long-term fight against the hedge funds.
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The theater chain’s new preferred share class — called “APE” units — begin trading on Monday after being distributed to shareholders as a dividend last week. The company expects to pay a dividend of about 517 million APE units socially responsible investing later this month. The new class of shares has the same voting rights as existing common stock, the company said in a statement. The short of it, is that AMC has seen its ability to issue more shares blocked by shareholders.
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Options, futures, and futures options are not suitable for all investors. First, the company is treating the preferred equity unit as a dividend. AMC Entertainment Holdings Inc. said Thursday that it plans to issue a dividend to all common shareholders in the form of preferred shares, after it had difficulty issuing more common shares. Traditionally, preferred shares or preferred units hold seniority over common shares. In the traditional sense, this means that dividends would be paid to preferred shareholders before that of common shareholders. Or in the case of a bankruptcy, preferred shareholders would be paid out before that of common shareholders.
How Were AMC And APE Investors Impacted?
For now, it looks like the movie theater company has delayed that outcome, thanks to some aggressive moves to stabilize its balance sheet. Investors aren’t sold on the strategy, however, and AMC stock has taken a beating. They characterize AMC as a value trap, arguing that there’s no fundamental improvement in the business. The company has struggled to generate profits for years, even before the pandemic shuttered movie theaters. The recent capital moves and the surprise $0.01 diluted EPS reported in the second quarter of 2023 may simply be too little, too late for AMC. Although these moves were part of AMC’s plan to avoid bankruptcy, investors have not responded well.
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See, AMC wanted to sell more shares and was shot down by investors. Maybe those investors didn’t want to be further diluted — AMC sold a lot of shares during the pandemic. But APE, the solution, isn’t just a nice marketing ploy to keep retail’s attention.
Option pricing is heavily inflated due to huge volume, interest, and speculation, which has driven large day to day price fluctuations in the stock. With an implied volatility north of 100% (according to the tastytrade platform at the time of writing), the option market is implying that the stock could be zero, or double, from its current price over the next year. Given AMC’s uncertain future, that discrepancy could cause the share prices of the APE units and the AMC stock to diverge. Mispriced stocks are hiding in plain sight and present great investment opportunities for the remainder of 2023. Forbes’ top investment experts share 7 overlooked stocks in this exclusive report, 7 Best Stocks To Buy Now.