AMC Shares Tank On APE Conversion Plans: Analysts, Jim Cramer And More Say It's 'A Clearer Path For AMC To Survive'

Shares of leading movie theater chain AMC Entertainment Holdings Inc AMC are spiraling down Monday after the latest company update on its stock conversion plan.

While shares of AMC Entertainment are falling, its preferred units traded as AMC Preferred Equity Units APE are trading higher.

Here’s a look at what an analyst and several television hosts are saying about the latest company update.

What Happened: On Friday, the court approved a revised stock conversion plan for AMC Entertainment. The revised plan will see a one-for-ten reverse stock split and the conversion of APE units into common shares.

The court previously rejected the revised settlement in July before agreeing to the updated plan on Friday.

The reverse stock split will occur Aug. 24 ,with APE units converted to AMC common stock the following day. A filing authorized the number of AMC shares to be increased from around 542.2 million to 550 million.

AMC CEO Adam Aron applauded the court’s ruling in a letter to shareholders.

“We can use this access to equity capital to shore up our cash reserves, pay down debt, invest in growth initiatives to strengthen our operating profitability and pursue transformative merger and acquisition opportunities,” Aron said.

Aron previously said that AMC faced liquidity concerns and needed to “be in a position to raise equity.”

“If we are unable to raise equity capital, the risk materially increases of AMC conceivably running out of cash in 2024 or 2025.”

Related Link: AMC's Q2 Results Reflect Strateggic Resilience And Growth, Analyst Says 

Reactions To AMC News: The court’s approval of the conversion settlement is the “final hurdle” for AMC to complete equity raises, B. Riley analyst Eric Wold said.

“In our 7/5 research flash note, we provided our opinion that the Vice Chancellor’s decision ultimately needed to go in favor of a settlement – with a belief this both represented an appropriate path to both compensate shareholders and unit holders,” Wold said.

The analyst, who has a Neutral rating and $4.50 price target on AMC, said the settlement provides a “clearer path for AMC to survive through the global exhibition industry recovery.”

Wold said AMC is unlikely to move into positive free cash flow territory until 2025 due to the ongoing Hollywood strike.

“We believe the company needed access to additional liquidity to avoid a situation where equity shareholders may have been left without anything.”

The analyst said the conversion of APE units could see AMC raise as much as $16 billion in “incremental equity.”

Wold said AMC could improve its balance sheet, acquire additional movie theaters and choose to diversify beyond movie theaters with the improved financial position.

CNBC host Jim Cramer highlighted the rise of meme stocks and retail traders Monday morning.

“They managed to save these companies, they saved Carvana,” Cramer said.

The meme stocks could be similar to the casino, and you need to be able to get in and get out if you’re playing the game, he said. 

“I think to say that Adam Aron is not unlike the slot machine is not wrong.”

Fox Business host Charles Gasparino tweeted that investors in AMC and APE may be learning an important lesson with the conversion.

“The other thing the AMC Ape community is learning is investing 101. As an investor it’s not your job to bail out a company; your job is to direct capital to companies that deserve it by returning gains on your investment,” Gasparino said.

Gasparino said AMC’s business is “getting better” but still faces challenges in the sector after the COVID-19 pandemic, and no amount of “stock pumping” or “gold mine investing” can change that.

“There are plenty of companies that deserve your money more than AMC because they are businesses with growth potential.”

Gasparino went on to question if shareholders of AMC could have done better if the company filed for Chapter 11 bankruptcy.

“These people could have made more money on money market fund than holding on to AMC. Obviously you did well if you followed the insiders and sold well into double digits.”

The Fox Business host said it’s sad that a lot of investors too “the hype as gospel and got crushed.”

AMC, APE Price Action: AMC Entertainment shares are trading at $3.49, down 34% on Monday and hitting new 52-week lows.

APE Units are up 17% to $2.08 on Monday versus a 52-week trading range of 65 cents to $10.48.

Read Next: AMC Entertainment Stock Pops After Q2 Performance, Here's What Drove The Results 
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