AMC Entertainment’s AMC Preferred Equity Units, or APEs, could open the door to substantial additional capital for the meme stock darling when they start trading on the New York Stock Exchange Monday.
Earlier this month, in a surprise move, AMC Entertainment Holdings Inc.
announced its preferred equity unit, or “APE” special dividend. The name is a nod to the investors who turned the company into a meme stock, who often refer to themselves as “apes” or “ape nation.”
But what will AMC do with this potential windfall?
The special dividend is the latest stage in a journey that took the movie theater chain from beleaguered pandemic victim to meme-stock phenomenon. AMC’s meme stock status sent the company’s shares skyrocketing last year, before coming back to earth.
The dividend also marks the latest move in a fight over stock issuances.
AMC shares, which have fallen 33.8% this year, have risen 55.6% over the last three months. The S&P 500 index
has declined 11.3% in 2022 and has gained 8.4% over the last three months.
The company’s stock was down 32% in premarket trading Monday.
B. Riley analyst Eric Wold expects the preferred equity units will give AMC access to a significant amount of additional capital.
“While we understand there was a notable level of initial confusion around the mechanics of the APEs and the potential need for a shareholder vote to unlock their value (to either shareholders or AMC), we continue to view this as a clever way for management to take advantage of the enthusiastic retail interest in the common equity over the past 18 months,” he wrote, in a note released on Friday.
“Although we maintain our neutral rating and $11 price target for AMC at this time, we acknowledge the path to a greater valuation will be dependent on how quickly management takes advantage of this situation to de-lever the balance sheet and/or create new growth paths within or outside the exhibition industry.”
Last week AMC shares were weighed down by a report in The Wall Street Journal that U.K. cinema chain Cineworld Group PLC
the parent of Regal Entertainment Group, was preparing to file for bankruptcy. However, Wold thinks this could present an opportunity for 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,” he wrote, in a note released on Monday. “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,” Wold added.
There is also potential for AMC to surprise everyone. This, of course, is a company that is no stranger to bold moves, as evidenced by the movie theater chain’s $27.9 million investment in gold and silver miner Hycroft Mining Holding Corp.
earlier this year.
While AMC remains a cause célèbre for a vocal community of individual investors, the company and its fellow meme stock phenomenon GameStop Corp.
were recently added to New Constructs’ list of “zombie” companies facing severe cash burn.
AMC’s financial health has also been cited as a cause for concern by RapidRatings, a company that assesses the finances of public and private companies.
Of eight analysts surveyed by FactSet, three have a hold rating and five have a sell rating for AMC.