AMC Entertainment’s stock price has taken a nearly 40% dive in early trading on Monday as the theater chain prepared to launch new “preferred equity” shares that it says will help reduce the company’s massive debt load but that has also raised fears of stock dilution.
The company’s stock was trading at $11 early on Monday, down nearly 40% from the $18.01 share price when the market closed on Friday.
The plummet also came as Cineworld, the parent company of rival Regal Cinemas, confirmed that it is considering a bankruptcy filing in the U.S. and other territories to reduce its own pandemic-fueled debt issues.
AMC’s fortune has been buoyed somewhat by its status as a meme stock. Earlier this month, CEO Adam Aron announced that one AMC Preferred Equity share — or APE, named after the meme traders that jolted the company’s stock price last year — would be granted for each common share held, meaning that 517 million APE shares would be created.
Aron has argued that since the shares are going to already existing shareholders rather than going directly on sale, APEs will not dilute AMC’s stock value.
But Wall Street analysts have disagreed, noting that the new APE stock (#$APE) has the same equity in the parent company as the existing common shares (#$AMC), functioning basically as a two-for-one stock split with separate share names. Investors seem to be joining them in that opinion on Monday, raising doubts about Aron’s stated goal of raising more equity through the creation of the new APE stock.
“With the creation of APEs, AMC is deeply and fundamentally strengthening our company. Given the flexibility that APEs will give us, we will likely be able to raise money if we need or so choose, which immensely lessens any survival risk as we continue to work our way through this pandemic to recovery and transformation,” Aron said in the letter announcing their creation.
And the compny’s overall financial forecast remains cloudy. Despite a strong second quarter for the box office which saw hits like Paramount’s “Top Gun: Maverick” and Disney/Marvel’s “Doctor Strange in the Multiverse of Madness” push domestic grosses to $2.32 billion, AMC reported a net loss of $121.6 million for the second quarter, or 20 cents per share.
Meanwhile, the box office is currently in a long slump that is not expected to end until mid-October at the earliest, as production bottlenecks caused by the COVID-19 pandemic have reduced the number of films being released in theaters compared to 2019. While August is historically a slower period for the box office, the financial strain caused by the year-long pandemic closure and another year of slow, steady recovery has compounded the effect of the recent downturn on movie theaters.
The biggest damage has been done to Cineworld, which has 751 theaters worldwide with 9,159 screens. The U.K.-based company said Monday it was meeting with major stakeholders to reduce its debt load and will keep its theaters operating even if it files for Chapter 11 and believes it will be able “to continue its business over the longer term with no significant impact upon its employees.”