Posted by Anirban Sen
(Reuters) – AMC Entertainment Holdings Inc, the movie theater operator that has become a “meme stock” during the COVID-19 pandemic, has come up with an unusual way to get shareholder approval for a stock sale that will raise cash, according to a regulator. and six corporate finance experts who reviewed it.
AMC has raised more than $2 billion through a stock sale in 2021, largely thanks to retail investors who have fueled a surge in its stock, as well as other meme stocks such as GameStop Corp.
This helped it avoid the fate of its bankrupt counterpart Cineworld Group LLC, but also diluted its shareholders ninefold. Investor backlash against the dilution prompted the Leawood, Kansas-based company to cancel a July 2021 shareholder vote to authorize the issuance of additional shares, Chief Executive Adam Aron tweeted at the time.
AMC is now asking shareholders for permission to further increase the number of ordinary shares tenfold. Instead of putting it to a separate vote for approval by shareholders, it combined it with a separate proposal popular with investors to convert its heavily discounted preferred stock into common stock, according to a regulatory filing filed by AMC on Jan. 27.
Holders of preferred stock will be allowed to vote on this matter along with holders of common stock. Because there are 1.8 preferred shares for each AMC common share, the preferred stock vote for the conversion could easily outnumber the common stock vote against allowing more common stock to be sold, according to six corporate finance professors polled by Reuters.
“It increases the chances (of the new common stock authorization) to pass this time,” said Jacob Thomas, a professor of accounting and finance at the Yale School of Management.
It is unclear how AMC shareholders will react to the merger of the two issues into one vote, which is scheduled for March 14.
AMC officials did not respond to a request for comment. In a Jan. 27 filing, AMC said the authorization to sell the common stock would provide “appropriate flexibility … without the expense or delay of a stockholder meeting” to allow investors to vote solely on the matter. He added that his board will determine when to exercise the right to issue additional shares.
AMC needs about 93 million new common shares to effect the preferred stock conversion after giving effect to the proposed reverse stock split, but the filing shows it is seeking approval to issue a total of 498.2 million common shares. That would give it 405.2 million common shares — worth about $2.2 billion based on AMC’s current stock price — to issue after the conversion is complete.
Graphic: AMC shares underperform broader Wall Street-https://www.reuters.com/graphics/AMC-ENT/AMC-ENT/zgpobkwelvd/chart.png
FINANCES ARE WORSE
AMC needs the cash to shore up its finances as many moviegoers still prefer streaming to theaters. It has posted net losses every quarter since it completed its debt restructuring in 2020.
As of the end of September, its debt had risen to $5.4 billion, and it had $4.8 billion in lease payment obligations for the remainder of its leases. At the end of September, he had only $685 million.
Campbell Harvey, a finance professor at Duke University, said tapping retail investors for additional cash is the right thing for AMC to do in light of its financial woes.
“Given that meme speculators can push prices away from fundamentals, it makes sense for a company like AMC to issue stock when management believes its own stock is overvalued,” Harvey said.
AMC created its preferred stock last August and gave it to its investors for free in the form of a stock dividend. It has since raised more than $250 million by selling new preferred stock, much of it through a deal with hedge fund Antara Capital LP. It could issue preferred shares even if it ran out of ordinary shares to issue because it relied on permission given to its board in 2013 by its former owner, China’s Dalian Wanda Group.
The price of its preferred stock fell from a high of $10.50 to less than $1, a steep discount to its common stock, which hovered between $5 and $8. In a Jan. 26 filing, AMC said it is proposing to convert the preferred stock into common stock to eliminate the trade discount. Antara also made the conversion a condition of investing in AMC.
(Reporting by Anirban Sen in New York; Editing by Greg Roumeliotis and David Gregorio)
