AMC Can Sell Nearly 400 Million New Shares Following Court Approval

AMC Entertainment Holdings will soon gain access to nearly 400 million new shares it can sell, a tool Chief Executive Adam Aron says is critical to the company’s efforts to stave off bankruptcy.

A Delaware judge on Friday approved a set of transactions that AMC plans to complete this month, concluding a more-than-two-year campaign by the company to free up more shares to sell after reaching its maximum limit in 2021 following a meme-driven frenzy surrounding its stock. 

The transactions will convert AMC’s preferred “Ape” units into common stock and effectuate a 10-for-1 reverse split, opening up a substantial basket of new shares it can sell as it tries to shore up its balance sheet amid ongoing cinema industry headwinds.

Some of AMC’s investors—including a highly vocal online contingent—had opposed multiple proposals made by the company that would authorize more shares, fearing it would dilute the shares they already owned. While the company earlier this year received investor approval for the transactions, certain shareholders filed a lawsuit seeking to stop the most recent transactions before agreeing to a settlement that would provide them with additional shares. 

Delaware Chancery Court Vice Chancellor Morgan Zurn on Friday approved AMC’s plan, paving the way for AMC to move forward with the transactions by offering the settlement to shareholders, which provides them with one additional share for each 7.5 shares owned.

If the transactions are completed on Aug. 24 as planned, they will reduce the total number of AMC common shares outstanding to 158.4 million. That will free up approximately 391.6 million additional shares for AMC to sell into the market or use for other purposes. 

“Were it not for our ability to have raised equity over the past three years, AMC would simply not have survived the pandemic-induced decline in our business,” Aron said in a statement posted online Monday. “Looking forward, the flexibility to raise equity capital at the appropriate times is an absolutely vital tool for any large company, and AMC is no exception.” 

On Monday, the prices of the preferred Ape units and the common stock moved closer to converging, reflecting that the Ape units will soon be converted into common shares. Apes closed Monday up 16% at $2.07, while common shares ended down 36% at $3.39. 

The spread between the two securities remains because of trading inefficiencies and timing, as the transactions won’t become effective for another week and a half, buy-side analysts said. A high amount of short interest in the common shares is also making them expensive to borrow, they said.  

AMC raised roughly $2 billion by selling common shares in 2020 and 2021, primarily to individual investors, before reaching its authorized share limit. After floating two proposals to increase that share count—then retreating under investor pressure—AMC created its preferred Ape units as a workaround. The new units had fewer restrictions on how many units could be sold. 

Last year, AMC granted one Ape unit for each common share as a special dividend, and then sold additional Ape units through at-the-market offerings and a direct sale to hedge fund Antara Capital, bringing the total number of Ape units close to one billion. AMC currently has about 517 million common shares.

Following the transactions and the conversion of the Ape units into common shares, all the common stock will be divided by 10 through the reverse-split, resulting in a float of 158 million new common shares.

Write to Alexander Gladstone at [email protected]