Shares of AMC Entertainment (NYSE:AMC) are down slightly on Thursday, off about 1%. However, AMC stock has had a mixed run as of late.
While the stock is down today, it’s riding a three-day win streak. Further, AMC stock rallied 7.5% on Wednesday and at the session high, was up more than 13% from this week’s low.
That said, shares have fallen in six of the last seven weeks, with AMC falling about 30% in that span.
Now investors are locked in on the hearing regarding the AMC Entertainment Preferred Equity Units (NYSE:APE). More commonly known as APE stock, it has been a controversial situation for AMC and dilution is at the heart of it.
Put simply, AMC Entertainment is looking to convert the APE shares into common stock and execute a reverse stock split.
More specifically, in December the company proposed a 1-for-10 reverse stock split, a $110 million equity capital raise, a $100 million debt for equity exchange, and the APE conversion.
A reverse stock split is not typically a positive long-term catalyst, but it at least doesn’t dilute current shareholders. However, issuing new shares will. So will converting APE stock.
While some investors worry about dilution, others argue that without being recapitalized, everyone loses.
AMC Stock Wavers as Two-Day Hearing Proceeds
As previously reported by InvestorPlace’s Eddie Pan, “Special Master Corinne Elise Amato issued a recommendation in favor of the conversion.”
Further, Pan reported that Amato had said, “No Objections caused me to doubt that the Court should certify a class for Settlement purposes and that notice was adequately disseminated to AMC stockholders.”
This all comes after the plaintiffs came to an agreement with AMC, although the courts had previously denied that agreement.
Now, the two-day hearing is taking place on June 29 and June 30 — the end of Q2 and the first half of 2023 — in order to “process shareholder objections to a relatively quick settlement reached weeks ago that would allow progress on AMC’s plan.”
That “plan” includes the APE stock conversion, reverse stock split and capital raise.
Of course, all of these outcomes will have an immediate impact on APE and AMC stock. According to Eric Wold of B. Riley Securities, “The only value for the APEs has been that they could be converted into AMC stock. If that never happened, there would essentially be no value,”
Interestingly, short interest in AMC stock stands at around 26%, while shares available to sell short have hit zero, according to some data sources. Short borrow fee rates have climbed considerably as well. As of June 29, they have more than tripled from June 21.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
