Stocks tumble as company announces new preferred EPAs
On the heels of yesterday’s announcement of its second quarter 2022 results, movie theater chain and meme stock AMC announced that it will issue a new type of preferred stock as a dividend to existing AMC shareholders. The announcement of the new preferred stock, ticker symbol APE, sent AMC shares plummeting in premarket trading this morning. Here’s what you need to know.
- What’s going on with AMC and APE? Briefly, AMC announced the creation of a new preferred stock called APE, which stands for “AMC Preferred Equity Units”. APE’s shares will be issued as a dividend to existing AMC shareholders, and will then begin public trading shortly thereafter.
- Is it weird to issue preferred stock as dividends? It’s not too common. Usually, dividends are issued in cash.
- So how is APE different from AMC stock? It will be its own separate stock trading on the stock market, so its price may diverge from the AMC stock price. However, for investors, an APE share will confer the same voting rights as an AMC share.
- How many APE shares will be given to AMC shareholders? Given that there are currently 516,820,595 AMC shares, 516,820,595 APE shares will be distributed.
- Why did AMC create the APE preference shares? This is where it gets interesting. AMC wanted to create new AMC shares last year to raise more money, but investors rejected the deal, fearing their existing AMC shares would be diluted. Without investor approval, AMC can no longer issue AMC shares. . . but they can issue a new type of stock. With permission from AMC shareholders in 2013, AMC can issue what are known as AMC Preferred Stock Units – and so, nine years later, APE was born. When the EPA is made public, the funds raised will go to AMC. Thus, AMC can now raise funds through APE even if they cannot create new AMC shares. Although 516 million APE shares will be issued free of charge to AMC shareholders, The Wall Street Journal reports, AMC may create an additional 4.5 billion APE shares for sale to the public.
- But why is AMC giving APE to existing shareholders? Call it an incentive. If you own the new stock, you are less likely to rebel against it (or oppose its issuance) when it is in your best interest for the stock price of the new stock to rise.
- So who gets free APE shares? Anyone who holds AMC shares at the close of business on Monday, August 15, 2022 will receive APE shares. Owners of AMC shares will receive one share of APE for each share of AMC they own. The APE shares will be paid for at the end of the business day on Friday, August 19, 2022. However, if the owner of the AMC shares sells his AMC shares before the IPO of APE, he will not be entitled to his APE shares. free.
- When does the APE become public? APE will begin public trading on the New York Stock Exchange (NYSE) on Monday, August 22, 2022
- What does AMC say about all this? Adam Aron, Chairman and CEO of AMC Entertainment, said, “Dividing shares of AMC Preferred Equity exclusively to our shareholders is, in our view, perhaps the biggest action we will take in 2022 to fundamentally strengthen AMC in the long term. This new AMC preferred stock gives AMC currency that can be used in the future to strengthen our balance sheet, including paying down debt or raising new equity. As a result, this greatly reduces any short-term survival risk for AMC as we continue to navigate our way through this pandemic. It may also provide AMC with additional capital to enable us to pursue investment opportunities that could create significant shareholder value and could be transformative in nature. All of this is not good news for those who might be rooting against AMC.
- How did AMC shareholders react? Not good, judging by AMC’s current pre-market stock price. As of this writing, AMC shares are down almost 10%. We’ll have to wait and see if the public will ape for APE on August 22.