: AMC’s APE conversion a ‘massive’ opportunity to wipe out debt and drive expansion, says analyst

AMC’s stock fell 5.6% Monday, while the APEs rose 21.4%. The S&P 500
SPX,
-0.92%
declined 0.3%.

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“Given that APE unit holders essentially control the vote at 64% of combined holdings and may not get another chance to extract value from those units, we expect  the  two  proposals  to  pass  and  for  this  vote  to  open  the  door  to  a  massive  equity raising opportunity for the company in the coming years,” Wold wrote in a note released Monday. “Not only could this help the company eliminate all balance sheet debt as the exhibition industry continues to recover, but it could allow management to pursue additional diversification options to drive incremental growth within the greater media industry.”

AMC said on Dec. 22, 2022, that it was seeking a 1-for-10 reverse split of its common stock. The special meeting of shareholders is scheduled for March 14, 2023, according to Friday’s SEC filing.

“Assuming the current AMC stock price holds into the vote, the reverse stock split would open the door to roughly $22 [billion] in equity capital,” Wold wrote on Monday.

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AMC exited its fiscal third quarter with debt of $5,325.3 billion and with cash and cash equivalents of $684.6 million.

“With our projection that AMC is unlikely to turn [free-cash-flow] positive until 2024 with multiple tranches of debt set to mature in the coming years within a higher interest rate environment, we believe debt reduction is top of mind with management. We suspect the opportunity to raise billions of dollars in equity provides that path,” Wold wrote.

“If either proposal fails, there is no conversion of APE units into AMC common shares and, we would suspect, APE units could potentially decline to price levels at the time before the announcement on December 22 — or below $1.00,” the analyst added.

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Over the past two years, AMC has been on a roller-coaster ride that took it from beleaguered pandemic victim to meme-stock phenomenon. AMC used the steep rise in its share price to tap into equity and debt markets, raising $917 million in January 2021. 

The company’s APEs made their trading debut in August. With its APE equity unit, AMC created something like a 2-for-1 stock split, marking the company’s latest effort in a fight over stock issuances. 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.”

AMC’s stock has fallen 47.8% in the last 12 months, compared with the S&P 500’s decline of 10.4%. The APEs have fallen 62.5% since their debut.

Related: AMC stock tumbles after reporting 12th consecutive quarterly loss

If the APE conversion is accepted, it could help drive AMC’s expansion, according to Wold. “In recent years, management has initiated some minor extensions into areas that could be viewed as complementary to the exhibition business (maybe other than Hycroft Mining),” he wrote. “However, we could see this access to meaningful capital as providing a path to further moves both within the exhibition space or into other media segments that could provide proper diversification and growth.”

Last year AMC stunned investors with an investment in gold- and silver-mining company Hycroft Mining Holding Corp. 
HYMC,
-0.02%
and its 71,000-acre Hycroft Mine in Nevada. The movie-theater chain is also branching out into an AMC-branded credit card and is selling its AMC Perfectly Popcorn in U.S. grocery stores.

B. Riley Securities has a neutral rating for AMC.