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Cinema chain AMC tumbles on plan to rework shares

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Shares in AMC Entertainment plunged on Thursday after the troubled cinema chain said it had raised $110mn in new capital and was seeking investor approval for a reverse stock split and new share issuance that would ultimately simplify its capital structure.

The cinema chain rose to investing prominence when it soared more than 100-fold as a “meme” stock beloved of retail investors in 2021 in spite of its financial travails. Chief executive Adam Aron has since tapped that interest through a series of stock sales and in August, began offering preferred units when it ran out of shareholder approval for further stock sales.

In a series of transactions announced on Thursday, hedge fund Antara Capital will buy $110mn of newly issued AMC preferred units at an average price of 66 cents a share, and will also swap $100mn of the company’s junior debt for another $91mn of the units, which trade under the ticker symbol APE.

The cinema operator is also seeking shareholder approval for a one-for-10 reverse split of AMC’s common stock, as well as to allow it to issue more ordinary shares and give it the ability to convert APE units into that stock.

AMC shares fell more than a fifth in early trading as investors factored in the expected dilution, and stood at $4.50, down 15 per cent, by early afternoon. APE units however shot higher to $1.07, up 54 per cent.

This year AMC’s shares have lost three-quarters of their value but its market capitalisation of $2.7bn ahead of Thursday’s news was still more than 10 times its level before the meme-stock drama.

AMC’s preferreds carry the same economic and voting rights as ordinary shares but would rank above them if it went bust. On Monday, it said it had raised $162mn to date from selling the APE units. Preferred shares should trade at a premium to common stock because of their higher status in a bankruptcy, but APEs have consistently traded at weaker prices.

“We believe it is in the best interests of our shareholders for us to simplify our capital structure, thereby eliminating the discount that has been applied to the APE units in the market,” Aron said.

Cinema chains are pinning their hopes on potential blockbusters to bolster businesses that have not recovered fully from the pandemic. AMC reported a third-quarter loss of $227mn and its operations burnt through $179mn in that period.

On Wednesday the company disclosed it had held talks with creditors of bankrupt rival Cineworld over buying some of its theatres, but added that discussions were not ongoing.

Cineworld, the world’s second-largest cinema operator, filed for Chapter 11 bankruptcy protection in September and in filings, lamented the fact it had not become a meme stock as its rival had.

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