Benzinga: AMC Stock Soaring High While APE Units Slump
AMC Entertainment's shares nearly double as court blocks conversion plan.
Shares of AMC Entertainment Holdings Inc (NYSE: AMC) experienced a significant surge during Friday's after-market session, nearly doubling in value to trade above $8. This increase was in response to news that had the opposite effect on the shares of its counterpart, AMC Entertainment Hldg Pref Equity Units (NYSE: APE), causing them to drop by over 20%. The reason behind this contrasting movement lies in a recent decision by a Delaware court to block AMC's attempt to convert its APE preferred units into common stock.
The conversion of these units would have diluted the stake of retail investors, who played a crucial role in saving the company from bankruptcy during the height of the pandemic. The court's ruling dismissed a settlement proposal that would have allowed the conversion to proceed while providing additional stock to offset the dilution impact on regular shareholders.
This unexpected ruling has surprised both investors and analysts, as both groups had anticipated a different outcome. The case is now sent back to square one, leaving the future of the conversion plan uncertain.
To understand the background of this situation, it is important to note that APE units were issued last year, with a 30% block allocated to Antara Capital LP. Since then, AMC has been working towards converting these units. Each unit is theoretically equivalent to 1/100th of a preferred share, which is meant to be equal to 100 Class A shares. However, due to uncertainties surrounding the conversion, these units have typically traded at a significant discount.
In the original vote on the APE conversion plan conducted in March, the majority of participating common stockholders supported the proposal. Ape unit holders also overwhelmingly favored the plan. However, a considerable number of retail investors either resisted the move due to concerns about share dilution or chose not to vote on the company proposals.
This ruling presents a challenge for AMC, as it had hoped to convert the APE units and issue additional shares to address its loan financing complications caused by interest rates. It is worth noting that this outcome is a rare win for small investors in a market that is largely dominated by institutional players. However, with the case still ongoing and AMC determined to recapitalize, the final outcome of this drama is yet to be determined.
In response to this news, AMC's stock price has surged by 66% in after-hours trading, reaching $7.32. Conversely, APE units have experienced a 20% drop, trading at $1.43.
As the story continues to unfold, it is clear that there are still many twists and turns to come. The fate of AMC's conversion plan and the impact on its shareholders remain uncertain. Only time will reveal the final act of this ongoing drama.