The AMC share jumps after the verdict in the shock court. Meme volatility is back.
The stock (ticker: AMC) surged 26% early Monday after a judge blocked AMC’s plan to convert its so-called APE shares into common stock.
At one point in the pre-market on Monday, the stock was up 70%.
The volatility is probably not over yet. AMC has submitted a revised share conversion proposal in an attempt to address the court’s concerns. Chief executive Adam Aron said if the court is satisfied, he hopes to move forward with the plan “as soon as possible”.
If that happens, expect the rest of the gains since the ruling to be quickly reversed.
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The ruling, by Delaware Vice Chancellor Morgan Zurn on Friday, had a big impact on shares in a busy weekend for the theater group that showed the debut of the Barbie and Oppenheimer films. AMC stock (ticker: AMC ) rose 26% Monday to $5.46, while APE ( APE ) stock, or AMC Preferred Equity, fell 1.4% to $1.76.
The details of the revised settlement have not yet been released, but a filing is expected to be made publicly available on Monday, Bloomberg reported, citing people familiar with the matter.
Wedbush analysts, led by Alicia Reese, said they expected volatility to continue as the judge considers the modifications made by AMC. They added that despite the stock rising, the ruling could lead to more dilution of the stock.
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Shareholders challenging the conversion had argued that it diluted existing shareholders without compensation, which eventually led to a settlement.
“What may not be clear to AMC’s shareholders is that if the company is unable to convert APE shares, AMC will be forced to issue significantly more APE shares to meet its upcoming cash needs,” they said. They have an Underperform rating on AMC with a price target of $2.
For AMC, it’s a matter of raising money and reducing its debt pile, which increased during the pandemic when movie theaters closed. It’s even more urgent given that current writers and actors’ strikes cast doubt on film releases next year and beyond.
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The conversion would have enabled AMC to raise more capital by selling shares. Aron told investors that raising new equity in the near term “is critical” for the company and that AMC was working to address the court’s concerns.
“AMC must be in a position to raise equity capital. I repeat, to protect AMC’s shareholder value over the long term, we MUST be able to raise equity capital. That’s especially the case now with the added uncertainty caused by the writers’ and actors’ strikes, which could delay the release of films currently slated for 2024 and 2025,” Aron wrote.
AMC reached a settlement with a group of shareholders, who argued that the share conversion diluted existing common shareholders without compensation in return. The terms of the settlement meant that common shareholders would receive shares worth more than $100 million, lawyers for the plaintiffs said.
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But Judge Zurn said she could not approve the settlement because the deal came at the expense of the APE unit owners.
“Allocating more shares to common shareholders necessarily comes at the expense of preferred shares; the settlement damages preferred unit holders,” she wrote, according to The Wall Street Journal.
B. Riley analyst Eric Wold maintained a neutral rating on AMC stock, with a price target of $4.50. He said the wording in the ruling, “the settlement cannot be approved as submitted,” likely “opens the door” for an adjusted settlement to be approved.
Write to Callum Keown at callum.keown@barrons.com
