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Dave Has Questions about WTF is Going on With AMC Stock... I Have Some Answers

Noam Galai. Getty Images.

Bah gawd, that's AMC's music.

It felt a lot like AMC was getting on the straight and narrow (as I mentioned in yesterday's newsletter).

The Water Coolest - Mouth breathers with "MOASS" tattoos who consider Adam Aron a father figure aren't going to like AMC's latest move.

The movie theater chain made a… wait for it… sound business decision. You might recall AMC made headlines for some recent head scratchers, like buying a huge stake in a literal gold mining company, and effectively splitting its stock via the issuance of preferred shares called APEs.

But this time around it wasn't something it did. It's what it didn't do. The theater chain decided against buying up some theaters owned by Cineworld. Cineworld recently filed for bankruptcy.

Pumping the brakes would have made sense considering shares had fallen below where they were trading when meme stonk mania kicked off in Janaury 2021…

The Water Coolest - AMC shares closed at $4.89 on Monday. That's below where the stonk was trading in January 2021, meaning the cinema chain has lost all of its meme stonk mania gainz pours out $17 ICEE in a commemorative Avatar cup

Andddd it took less than 24-hours for head crayon eater, AMC CEO Adam Aron to prove me wrong.

"But just when I thought I was out, they pull me back in…"

Today AMC did what it does best: act like an absolute wildcard. Which, to be fair, has worked out ok so far.

Bloomberg - AMC Entertainment Inc. sank after proposing to convert preferred equity units into common shares along with a 10-to-1 reverse stock split.

The changes would stop investors from pushing AMC toward “penny stock” territory, Adam Aron, chief executive officer of the world’s largest movie theater chain, said Thursday. The preferred equity units debuted in August and were quickly caught up in volatility linked to retail trading of so-called meme stocks.

AMC also said Thursday that it raised $110 million through the sale of preferred equity units to debt holder Antara Capital LP at a weighted average price of 66 cents each, below market value. 

There are really three things happening here.

1) AMC is proposing that it converts its "APE" preferred shares to AMC stock. A little history lesson: back in August AMC offered up a "special dividend" to shareholders. For each AMC stock you held, you got an APE preferred share (spoiler: they can be converted back to AMC shares). This effectively acted like a stock split. But it was viewed as shady as fuck by Wall Street. AMC shareholders wouldn't vote to allow the chain to create more AMC stock out of thin air to sell and raise more money (because it would dilute the outstanding shares). So the big brains over in AMC's creative accounting department dreamt up the APE shares, which didn't require a shareholder vote to sell. And sell they did. We learned this week that the company printed $162 million in straight cash homie via its (totally legal) scheme.

2) The company is proposing a 10-to-1 reverse stock split on its AMC shares. For every 10 shares you own, you get 1 shiny new stonk that goes all Grant Cardone (read: worth 10x the original price). The individual share price goes up while the total number of outstanding shares drops. The value of the company remains the same. This will help avoid penny stock territory and could attract some institutional investors… I guess. So, essentially polishing a fucking turd.

3) AMC also sold a boat load ($110 million worth) of APEs to Antara Capital. Remember, this is EXACTLY why AMC created these preferred shares. The 9-figure pay day will help pay down debt and probably finance some other batshit ideas Adam Aron has up his sleeve. One issue, if you're a shareholder, is that the APEs were sold to Antara at a 3% discount. Investors like this sorta thing as much as they like calling their mom's new husband "dad."

All of this had an impact on AMC and APE prices, obviously. And people had questions… understandably so.

At the time of the writing AMC shares were down 12% and APE shares were up 77%. Keep in mind that in theory these shares should be trading roughly around the same level since the "dividend" was a stock split of sorts. But yesterday APE closed below a dollar, and AMC finished above $4. The market sees an opportunity currently since APE shares are likely to be converted to AMC shares… and trading a thing that costs $1 for something that's $4 is never not a good deal. Because math.

The other plans AMC has muddy the waters a bit. Selling the APE shares at a discount is a red flag for investors. And looking to avoid penny stock territory by completing a 10-for-1 reverse split doesn't exactly scream blue-chip investment. 

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