AMC Entertainment Holdings Inc., a publicly-traded company responsible for managing the operations of the AMC cinema chain, has received approval from its shareholders regarding its previously announced plan to convert AMC Preferred Equity APE (or “APE”) units into common stock shares. The vote was held on January 25, 2022 during a special meeting of the company’s shareholders, and was hailed as a critical step towards eliminating AMC’s substantial debt load.
The company’s proposal to convert APEs into common stock shares required the approval of the majority of the company’s outstanding common stock shares, and the company’s board of directors had unanimously recommended that shareholders vote in favor of the plan. The conversion involves turning the APEs into common stock shares at a ratio of 1-for-10, and increasing the number of authorized shares from just over 524 million to 550 million. The reverse stock split will reduce the company’s outstanding shares, resulting in a higher stock value and more attractive investment opportunity for potential investors.
AMC’s management framed this proposal as a necessary measure, as the company was facing an enormous amount of debt, particularly after a steep decline in revenue due to the COVID-19 pandemic. As I previously reported, AMC felt the full brunt of the pandemic, with the company recording $4.59 billion in revenue in 2020, down significantly from the $5.47 billion recorded the previous year. Despite various cost-saving measures implemented by the company, debt remained a significant issue. AMC’s debt level is over $5 billion, a situation that the company needs to address as soon as possible.
The vote is undoubtedly a positive development for AMC, which is seeking ways to address its substantial debt and secure its financial future. In addition, the conversion is expected to improve liquidity and facilitate potential expansions and acquisitions in the future.
Still, the decision may not have been taken as unanimously. There is a class action lawsuit pending against the company, filed by some shareholders who accuse AMC’s leadership of illegally diluting their stake, and of breaching their fiduciary duties to the shareholders. The lawsuit claims that the decision to convert APEs violates the company’s certificate of incorporation and was only meant to benefit the management and several large investors with a large number of APEs, at the expense of small stockholders.
The plaintiffs argue that the conversion of APEs into common stock would result in the loss of voting power for the company’s common stockholders, as well as reducing the dividends they may receive. They also allege that the conversion would increase the stock ownership of large entities that hold APEs, such as Silver Lake Group, Wanda America Entertainment, and Dalian Wanda Group, while decreasing the small investors’ ownership.
AMC’s management denies these allegations, and its leaders have strongly defended their decision to convert APEs into common stock shares. Specifically, the company argues that the proposal is not only beneficial for the company but also offers particular advantages to smaller investors in various ways.
For instance, the conversion will reduce individual APEs from $50 to $25, essentially halving the cost of purchasing a stake. In addition, the move will raise the number of authorized shares, resulting in additional shares that can be available for smaller investors. Furthermore, the additional shares would provide an opportunity for smaller investors to capitalize on any stock price growth that could result from the company’s future prospects.
In a statement, AMC CEO Adam Aron said, “The reverse stock split and the APE conversion are two critical steps in our increasingly successful quest to aggressively reduce AMC’s debt… The result of the shareholder vote is gratifying and allows us to move further ahead with the plan.”
It appears that AMC’s resolution to convert APEs into common shares held significant support among its shareholders. Despite the forthcoming lawsuit, the company’s plan has passed with over 85% voting in favor of the proposal, a strong indication of investor trust in the company’s leadership and restructuring strategy.
To conclude, AMC’s plan to convert APEs into common stock shares demonstrates the company’s strong resolve to tackle its considerable debt burden, which has been exacerbated by the pandemic. While some shareholders have challenged the company’s decision, the vote result shows confidence in AMC’s direction overall. With these measures in place, the company is poised for improved liquidity, potential expansions, and a brighter future.
