Quiver Quantitative - AMC Entertainment (AMC) has recently witnessed significant upheaval in its stock value, resulting in an 18.27% decline. Following a filing with the Securities and Exchange Commission, the company announced that the trading of AMC Preferred Equity units (APE units) would cease on Aug. 25. These units, introduced in 2022 to assist the company in debt settlement, will now be converted to common stock, leading to a unified class of AMC common shares.
As a result, AMC’s shares plummeted to a new low of $2.46, their most dismal since January 2021. This restructuring was deemed necessary by AMC after the preferred equity units allowed the company to bypass investor concerns about dilution, raising capital during the pandemic which enabled them to evade bankruptcy when theaters were mostly shut.
To raise capital for debt repayment, AMC had launched APE units in 2022. These will be transformed into common stock a year after their inception. This move is anticipated to streamline AMC's stock structure by ending the trading of APE units and concentrating solely on a single class of AMC common shares. Furthermore, AMC has also disclosed plans for a 10-to-1 reverse stock split of its common stock. This is expected to increase the company's authorized share count dramatically.
The move to convert preferred stock to common stock has not been without controversy. AMC faced a lawsuit earlier this year accusing them of manipulating a shareholder vote, enabling this conversion and potentially issuing hundreds of millions of new shares. A subsequent revised stockholder agreement responding to this lawsuit received approval last week. Eric Wold from B. Riley Securities and Eric Handler of Roth MKM offer contrasting views on the situation. While Wold perceives this conversion as an opportunity for AMC to thrive through the challenges in the post-pandemic era and other industry obstacles, Handler remains skeptical, attributing the share's overvaluation as his primary concern.
Despite the tumultuous period, liquidity issues for AMC have temporarily been addressed. Eric Wold remains optimistic about AMC’s potential, projecting a stock price target of $4.50. Conversely, Roth MKM's Handler holds a more conservative estimate at 50 cents, emphasizing his reservations regarding the company's current valuation. For AMC to justify its current market capitalization, Handler points out that the company would need to achieve an adjusted EBITDA close to $1 billion, a target considerably above Roth MKM’s 2024 forecast.
This article was originally published on Quiver Quantitative