AMC Cleared to Sell 400 Million New Shares After Court Approval

AMC Entertainment Holdings (NYSE:AMC), a struggling movie-theater chain, has secured court approval to proceed with a vital move to sell approximately 400 million new shares. This action, endorsed by a Delaware judge, is seen as crucial for AMC’s CEO, Adam Aron, to steer the company away from bankruptcy.

Overcoming resistance from meme investors concerned about value dilution, the transactions will involve converting AMC’s preferred “Ape” units into common stock and implementing a 10-for-1 reverse split. These measures will enable AMC to access a significant pool of new shares, assisting in shoring up its financial position amid challenges faced by the cinema industry.

Previously, some AMC investors, particularly an active online group, opposed plans to authorize more shares, fearing a dilution of their existing holdings. While the company gained investor approval earlier this year, legal action ensued. However, a settlement has now been reached, granting these shareholders additional shares.

Delaware Chancery Court Vice Chancellor Morgan Zurn’s approval of AMC’s plan allows the company to move forward with the transactions. Shareholders will receive one additional share for every 7.5 shares owned, resulting in a reduction of total outstanding common shares to 158.4 million. This creates an availability of around 391.6 million new shares for AMC to use.

Upon completion of the transactions on August 24 as scheduled, AMC’s common shares will be consolidated via a 10-to-1 reverse split, resulting in 158 million new common shares in circulation. The market prices of preferred Ape units and common shares are showing convergence as the Ape units are set to be converted. Apes closed up 16% at $2.07, while common shares ended down 36% at $3.39 on Monday. The lingering spread between the two securities is attributed to trading inefficiencies and timing, with the transactions not taking effect for another week and a half. Analysts also note high short interest in common shares, making borrowing expensive.

AMC had previously raised about $2 billion by selling common shares, hitting its authorized share limit. After encountering opposition to increasing the share count, the company introduced preferred Ape units, which had fewer restrictions on sales. AMC granted one Ape unit for each common share last year and sold additional units through various means, totaling close to one billion Ape units. AMC currently holds approximately 517 million common shares.

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AMC Cleared to Sell 400 Million New Shares After Court Approval

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