AMC Entertainment’s New APE Stock Comes With a Big Catch The Motley Fool
Not so with meme stocks, the latest monkey wrench thrown into the grooved gears of Wall Street. Years ago, the most rapacious cutthroats in the stock market were slick, suit-wearing Gordon Gekko types. Now they’re shit-posting, meme-loving millennials and Gen Zers who congregate virtually on Reddit. In the process, hedge funds and institutional investors that had shorted the dying brick-and-mortar video game retailer were “squeezed” out of $11 billion, and some of the “apes” got rich. The issuance of new shares raises concerns about dilution for existing shareholders. This is one of the reasons why AMC shareholders had rejected the company’s previous efforts to issue more common stock.
The APEs have the same voting power and right to a dividend as AMC common shares. On September 6, AMC announced its intention to sell 40 million more common shares. The company will again use the proceeds to repay debt and improve its cash position. Two key initiatives in the restructure are a reverse stock split and conversion of preferred equity into common stock. Read on to learn the details of these moves and whether they can keep AMC out of bankruptcy going forward.
While the APE shares are in a different class and have different names, they could in theory be converted in the future to one common share of AMC. The company expects to issue a dividend of around 517 million APE units later this month. The new class of shares carries the same voting rights as the existing common shares, the company said in a release. The company expects to pay a dividend of about 517 million APE units later this month. The new class of shares has the same voting rights as existing common stock, the company said in a statement.
The reality is that very few people interested in either AMC shares or APE units are concerned about a potential bankruptcy and are more likely just looking to make short-term trades on current sentiment. The nature of the preferred shares should lead them to trade similar to AMC common stock but the real mover for the moment appears to be how much it is discussed on Reddit. The more complicated aspect of the new APE units is how they actually function. The APE units were issued as a special dividend to holders of AMC common stock with each share of AMC receiving one APE.
- APE units rose 9 percent to $1.88 in trading on Tuesday, while AMC stock fell by 72 cents, or around 13 percent, to $4.74, as investors begin to anticipate a possible convergence.
- What investors are seeing is heavy trading of ATPC stock on Tuesday morning.
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- But management’s latest plan is to wipe out their shareholders entirely.
- Like a self-fulfilling prophesy, it was nearly bankrupt and then people bid it up like crazy, allowing management to sell more stock and all of a sudden, it has $2 billion of cash and the crisis is over.
It currently trades at around $2.50/share, down from $4 a few days ago. But management’s latest plan is to wipe out their shareholders entirely. GTT bonds, https://traderoom.info/ which are senior to equity, trade at just 12 cents on the dollar. So, somebody is going to lose their investment and it will likely be shareholders.
As a general rule, the price of a T-bills moves inversely to changes in interest rates. Although T-bills are considered safer than many other financial instruments, you could lose all or a part of your investment. See Jiko U.S. Treasuries Risk Disclosures for further details. 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. If shareholders embrace APE stock shares with open arms, the price could theoretically rise above AMC common stock.
What are the risks to the company and investors?
Unlike common stock, preferred stock has some stipulations that give the Board of Directors more power to make decisions without shareholder approval. The board can decide how many shares to issue and how calculating support and resistance levels much to sell them for. Yet AMC’s new APE shares are designed to attract retail investors, so they function practically like common stock; they have the same economic and voting rights as AMC common shares.
AMC’s APE Units Come at a Bad Time for AMC Stock
AMC raised billions during the pandemic by selling new stock but ran out of shares to sell. Investors, fearing dilution, rejected the company’s efforts to issue additional stock. 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. Options
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The Short, Controversial Life Of APE
However, AMC found a loophole—issuing an entirely new class of shares to take advantage of the enthusiasm of eager buyers. As would be expected, AMC issued the new APE units in an effort to raise more money. The reason it didn’t just issue more common shares is that the company would have to get approval from its shareholders, which shareholders already shot down. Instead, the firm found a workaround to sell billions of dollars worth of shares without needing shareholder approval in an effort to capitalize on the extreme hype AMC has received from meme investors. Converting APEs into AMC common shares had opponents as it will dilute the company’s stock, which effectively will reduce the overall share price. In early 2021, AMC became a popular stock among retail investors after the company appeared close to bankruptcy amid the pandemic fallout at movie theater chains.
This is a landslide victory that shows your determination to keep AMC a strong and innovative company and the leader of our industry,” CEO Adam Aron said following the affirmative votes. Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation. Aron said the company could theoretically list five billion APE shares based on what was approved by shareholders back in 2013 but added that he has no plans to do so. A single APE unit will be granted for each common share, meaning that about 517 million shares of this new stock will be formed.
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At their size, AMC and its fellow meme stock GameStop
can now move the index either up or down dramatically in any given day. Consider AMC
Entertainment (AMC), which was recently on the verge of bankruptcy, now has a market capitalization (including net debt and lease liabilities) of over $41 billion. With 950 locations, that works out to over $43 million/theater, but AMC doesn’t own most of those. © 2024 Market data provided is at least 10-minutes delayed and hosted by Barchart Solutions.
An indication of interest to purchase securities involves no obligation or commitment of any kind. In late Dec. 2022, AMC announced it raised $110 million to pay down debt by selling APE units to Antara Capital, LP to reduce the company’s debt load by around $100 million. The vote at the special meeting of shareholders was required to permit a wider conversion of APE units into AMC common shares. While APE shares may dress like AMC common shares and walk like common shares—under the hood they technically diverge.