AMC Works Around Shareholder Opposition For Capital Raise Via Dilutive Stock Sale

Zinger Key Points
  • AMC's proxy filing Friday showed the company has resorted to a novel approach of bundling proposals to issue fresh shares.
  • Following over $2B worth of stock sales in 2021, shareholders of the theater chain took up cudgels against further dilution in stakes.

AMC Entertainment Holdings, Inc. AMC recently filed a proxy statement to convene a special shareholder meeting to discuss three proposals put forward by the company.

The theater chain has used the filing to take an unpalatable proposition to its shareholders, Reuters said in a report.

What Happened: AMC, through the Jan. 27 proxy filing, sought shareholder approval for increasing its authorized shares. Instead of putting it forward as a straight proposal, the company bundled it with another proposal that seeks to convert its preferred stock into common stock, Reuters said.

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Through the first proposal, the company has requested shareholders' nod for increasing its authorized shares from more than 524 million to 550 million. Proposal number: two from the company seeks approval for a 1:10 reverse stock split.

AMC noted that the increase in the authorized capital and the reverse split would permit the full conversion of all outstanding Series A preferred stock into common stock.

AMC's preferred equity units are trading under the ticker symbol APE on the NYSE. Each APE currently represented 1/00th of a share of Series A preferred stock. APE closed Tuesday’s session at $2.42, up 3.86%, according to Benzinga Pro data. The common stock of AMC, meanwhile, ended at $5.35, up 6.79%.

AMC noted that currently there were some 517 million outstanding common stock and almost 9.3 million Series of preferred stocks, which are represented by 929.8 million APEs. Post the approval, one APE will be equal to 1/10 of AMC common stock, the company said.

While AMC would need 93 million new shares for the conversion, the company is seeking authorization for a total 498.2 million common shares, Reuters said, citing the filing. Following the conversion, the company will, therefore, be left with 405.2 million new common shares. At Tuesday’s closing price, the new shares, less the ones used for conversion, are valued at $2.17 billion.

Since preferred stockholders would also be allowed to vote on the proposal and there are 1.8 preferred shares for every common stock of AMC, the former can sway the voting in favor of the authorization, Reuters said, citing corporate finance professors.

The special meeting of shareholders is scheduled for March 14.

Why It’s Important: AMC’s fundamentals took a hit during the COVID-19 pandemic due to theater closures. As the company embarked on a recovery path following the pandemic, it resorted to stock sales to keep cash flowing in, averting a potential bankruptcy.

AMC capitalized on the meme stock frenzy that lifted its stock price to raise about $2 billion in 2021, Reuters said. However, as shareholders voiced opposition to dilution, AMC canceled a shareholder meeting it convened in July 2021 to obtain approval for a fresh stock sale.

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