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AMC: The APEs Could Be Company's Development Of The Year

AMC Entertainment is set to issue APE shares on August 19. Here's what investors need to know.
  • AMC plans to issue a special AMC Preferred Equity (APE) as a non-dilutive stock dividend.
  • On August 22, APEs will publicly trade on the NYSE.
  • For dilution to take place, APEs will need to be converted to AMC common stock.
Figure 1: AMC: The APEs Could Be Company's Development Of The Year

Figure 1: AMC: The APEs Could Be Company's Development Of The Year

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What Are APE Shares?

During its second-quarter earnings call, AMC Entertainment's  (AMC) - Get AMC Entertainment Holdings Inc. Class A Report management announced that it will issue a dividend in the form of AMC Preferred Equity (APE) shares.

Here's how it will work: On August 19, every AMC shareholder as of August 15 will receive one share of APE for every AMC share they own.

Named in honor of the Apes, AMC's meme-investor fanbase, these shares will give AMC a way to issue additional stock. Shareholders, fearing dilution, had nixed an earlier proposal to issue additional common stock.

On August 22, APEs will start publicly trading on the NYSE, and AMC's common stock price will be cut in half. So if AMC closes at $25 per share on August 19 (the previous trading day), on August 22, AMC shares will open at $12.50, and APE shares will also open at $12.50.

Why Is AMC Issuing APE Shares?

AMC's plan to issue preferred equity shares is a lot like a two-for-one stock split.

Although they don't really add any value to a company's fundamentals, stock splits can have a huge short-term impact on investor morale.

Another "meme stock," GameStop  (GME) - Get GameStop Corporation Report, recently performed a four-for-one split. After the company announced its plans to split the stock, GME shares jumped nearly 80%. And since the split took place, shares have risen an additional 20%.

AMC's APE plan has had a similar effect. The stock leapt nearly 20% in the trading session following the announcement.

Looking ahead, the preferred shares could also help AMC raise capital to help it pay off its massive $12 billion debt load.

During the APE announcement, CEO Adam Aron said that the initiative would be one of the company's most significant developments of 2022. Moreover, it would create a tally of AMC's current shareholders and shed light on the existence of phantom or synthetic shares:

Will This Dilute AMC Stock?

As long as AMC and APE shares remain separate, there will be no dilution. However, that could change if shareholders vote to permit the conversion of APE shares to AMC shares.

During AMC's June shareholder meeting, Aron made it clear that he has no plans to dilute AMC's common stock in 2022. But he also stressed that the dilution of AMC shares over the past year has not been responsible for the stock's downturn since late 2021.

On the contrary, in all periods when there was stock dilution — January and June 2021 — AMC's share price soared. It was only when the equity offering plan was finalized that AMC lost momentum:

If it becomes necessary to dilute AMC by converting APE shares — say, in order to pay off debt — the company will have to do so strategically, minimizing the potential effects on AMC's share price.

However, meme stocks don't act like regular stocks. So maybe an APE/AMC dilution wouldn't have a bearish effect.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)