August 05, 2022
Hot on the heels of announcing its Q2 2022 results (August 17, 2022), movie theater chain and meme stock AMC announced 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, has sent AMC shares down in pre-market trading this morning. Here’s what you need to know.
What’s going on with AMC and APE? In short, AMC announced that it is creating a new preferred stock called APE, which stands for “AMC Preferred Equity Units.” Shares of APE will be issued as a dividend to existing AMC shareholders, and will then begin trading publicly soon after.
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 than AMC stock? It will be its own separate stock trading on the stock market, so its price can diverge from the AMC stock price. However, for investors, one share of APE will confer the same voting rights as one share of AMC.
How many APE shares will be given to AMC shareholders? Since there are currently 516,820,595 AMC shares, 516,820,595 APE shares will be given out.
Why did AMC create APE preferred shares? This is where it gets interesting. AMC wanted to create new shares of AMC stock last year in order to raise more money, but investors rejected the deal, afraid their existing AMC shares would be diluted. Without investor approval, AMC can’t issue more AMC shares . . . but they can issue a new type of stock. Thanks to authorization from AMC shareholders back in 2013, AMC can issue what is known as AMC Preferred Equity Units–and thus nine years later APE is born. When APE goes public, the funds raised will go to AMC. Thus AMC can now raise funds through APE even though they can’t create new AMC shares. Though 516 million APE shares will be issued to AMC shareholders for free, as The Wall Street Journal reports, AMC can create another 4.5 billion APE shares to sell 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 object to its issuing) when it’s in your best interest that the share price of the new stock rises.
So who gets free APE shares? Anyone who owns AMC stock by the close of business on Monday, August 15, 2022, will get APE shares. AMC stock owners will receive one share of APE for every share of AMC they own. APE shares will be paid by end of business day on Friday, August 19, 2022. However, if the owner of AMC stock sells their AMC shares before APE goes public, they will not be entitled to their free APE shares.
When does APE go public? APE will begin trading publicly on the New York Stock Exchange (NYSE) on Monday, August 22, 2022
What does AMC say about all of this? Adam Aron, AMC Entertainment Chairman and CEO, said, “The dividend of AMC Preferred Equity units exclusively to our shareholders in our opinion is perhaps the single biggest action we will take in all of 2022 to fundamentally strengthen AMC for the long term. This new AMC Preferred Equity gives AMC a currency that can be used in the future to strengthen our balance sheet, including by paying down debt or raising fresh equity. As a result, this dramatically lessens any near-term survival risk for AMC, as we continue to work our way through this pandemic. It also can provide AMC with added capital enabling us to seek investment opportunities that could create significant shareholder value and could be transformative in nature. All of this is not good news for those who may be rooting against AMC.”
How have AMC shareholders reacted? Not well, if today’s pre-market AMC stock price is anything to go by. As of the time of this writing, AMC shares are down almost 10%. We’ll have to wait to see if the public goes ape for APE on August 22.