AMC Entertainment’s new APE securities — AMC Preferred Equity Units – began trading today late morning in a messy session for the big exhibitor, whose primary stock is down by almost 40%.
APES were being distributed to AMC shareholders via their brokers starting this morning. Shareholders are getting one APE for each share of common stock they own. APES — which will have the same economic value and voting rights as common stock — opened at $6.95. A report said the security was halted briefly after trading up to $9.49. It popped to over $10 but is currently changing hands at $7.37.
AMC had tried to prepare investors in an explanatory note, and tweet today by CEO Adam Aron. “An investor should … expect that the price of a stand-alone share of common stock logically should at least initially decline, however that investor’s economic interest will be the sum of the price of a share of common stock plus the price of an APE,” AMC said.
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Aron, when announcing the APES earlier this month, described them as a kind of special dividend, a gift to AMC stockholders. (Apes are also slang for amateur investors, who piled into AMC in 2021.)
The company is issuing 517 million APEs today and the board has authorized issuance of up to one billion of the securities. APES are good for the company in that AMC now has a new currency it can uses to 1) strengthen its balance sheet, including reducing debt and other liabilities, and 2) invest in “shareholder value-enhancing and transformative M&A investment opportunities.” Aron has hinted that could include theaters eventually shed by Regal.
The new securities provides flexibility that “immensely lessens any survival risk as we continue to work our way through the impact of the COVID pandemic towards recovery and transformation,” AMC said.
Pandemic recovery or lack thereof is front and center today as giant chain and Regal parent, Cineworld, confirmed it may file for Chapter 11 in the U.S. to restructure. It dropped a first bombshell last week when it announced plans to do something dramatic finding itself with untenably high debt and dwindling ticket sales as a glut of new wide releases has given way to a quiet late summer and early fall for tentpoles. Cineworld has about $9 billion in debt, a big chunk of that acquired when it bought Regal in 2018 for $3.6 billion. (The UK giant is also on the hook for a circa $1 billion payout to Cineplex of Canada for agreeing to buy the company then changing its mind.)
A newly weak film slate is something all exhibitors face and that CEOs all acknowledged on recent earnings calls. So shares of AMC were hit by Regal’s news, as were stocks of Cinemark, Marcus and Imax. But analysts who follow the sector view Cineworld’s balance sheet concerns as a company-specific issue.
“In our opinion, the balance sheets of AMC, CNK, and MCS [the other three] are well positioned to push through that weak slate and we do not see any reason for investors to be incrementally concerned. Furthermore, we see an attractive setup for the exhibitors heading into the stronger film slates of 4Q22 and 2023 given the positive attendance and per patron spending dynamics over the past 6-12 months,” said Eric Wold of B. Riley Securities in a note.
APE securities will give AMC access to a significant amount of additional capital, And he sees Regal woes as a potential boon to AMC.
“While we suspect a move into bankruptcy by Cineworld would be mostly focused on restructuring the balance sheet, we would not rule out the divestiture of some assets. Given that AMC already operates theaters within Europe, we believe AMC could become an interested buyer. As for Regal assets in the U.S., we could see AMC maneuver around market share restrictions with lease takeovers,” said Wold.
The meme stock volatility is something Aron just has to manage. AMC became a meme poster boy in early 2021 when opinionated, vocal retail investors poured into the stock to help it rise and crush short sellers, who bet the shares would fall. That completely turned over the shareholder base from institutions to individuals. By sending the stock flying during Covid at a crucial time, they allowed AMC to raise cash by selling shares at the inflated prices and helping it to stay financially solvent. Aron’s unusual strategy ever since has been to work with, humor, and when he can include this unruly group in decision making.
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