![]() In July 2021, the firm withdrew its proposal to add 25 million shares to its count before a vote could happen. AMC’s management also never gave common shareholders a chance to reject the dilutive issuance. Through this lens, AMC’s issuance of 642 million APE shares went against shareholder interest management could have easily issued non-voting preferred stock. Regulators largely frown on the unilateral dilution of voting shares, which is why most preferred stock are issued with zero voting rights. ![]() And if that argument fails to impress the judge, the defense can point to the firm’s corporate governance guidelines, which prioritize the “ long-term health and overall success of the business,” not shareholder voting rights. If he failed to create the new share class, AMC would likely have folded the same way as Regal Cinema parent Cineworld (OTCMKTS: CNNWQ) did this year. Aron also had limited options in fundraising during the 2020 Covid-19 pandemic. AMC’s registration state of Delaware has no clear limitations on preferred share voting rights, so issuing voting APE shares is perfectly legal in the state. On the APE’s side of the argument, Aron issued the preferred shares following the letter of the law. How About a Game of 3D Chess…ĪPE shares have consistently traded at a significant discount because of their unclear standing. With APE shares now trading for a tiny fraction of AMC ones, something will eventually have to give. Aron’s APE shares “an exercise in 3-D chess” that would “eviscerate” common stockholders. ![]() Meanwhile, AMC shareholders have revolted, with one class-action suit calling Mr. Prearranged agreements with hedge fund Antara Capital and Computershare Trust further stack the chances in favor of conversion. The March 14 vote is all but guaranteed to approve the APE-to-AMC conversion since APE voting power now trumps AMC’s by a 1.25-to-1 ratio. 27, AMC announced plans to convert APE shares into ordinary AMC ones, turning its “unofficial” capital raise into a decidedly official one. This unspoken truce is now coming to a head. Without that financial lifeline, AMC would be out of cash within 3-4 quarters. Aron could use APE’s proceeds to chip away at his company’s enormous $5.3 billion debt pile. (The Reddit crowd, after all, is notoriously poor at showing up for proxy meetings). Retail investors could continue ignoring management’s pleas to vote for a share increase. It was a win-win for the firm and its stakeholders. By issuing shiny new preferred APE shares (rather than the dull AMC type), the theater chain’s boss could side-step the 524 million AMC share cap and generate a ton of cash from willing retail investors. ![]() In August 2022, CEO Adam Aron hatched a cunning plan to raise more capital. That means there’s only one clear way to profit from this gap:īuy preferred APE shares and ignore the AMC common issue. July’s at-the-market put options cost around $4.50, and May ones are little better. If the APE conversion gets delayed beyond that point, the convergence trade collapses and arbitragers walk away with nothing.Īnd finally, synthetic convergence trade strategies are unattractive, thanks to AMC’s inflated price. Fee rates are as high as 200% per year, meaning it could cost as much as $5.30 to sustain the position through the end of Q2. Second, AMC’s low float makes the shares extremely expensive to short. And if you’re willing to take on more risk than the average arbitrage trader, then APE shares are becoming an enormous convergence trade… with a rather large wrinkle. Still, the widening gap between AMC and APE shares should eventually make the gamble worth the risk. InvestorPlace - Stock Market News, Stock Advice & Trading Tips In the past fortnight alone, an unhedged short AMC position would have lost 75%. The convergence trade also involves short-selling AMC, a move that should make most hedge funds think twice. AMC shareholders seem to be gearing up for a messy legal battle, which could delay or entirely derail the APE deal. Corporate boards prefer meetings to look like weddings, where the right people are coached to say “I do” at the right time.īut this is the real world, a place where couples get cold feet and wedding chapels catch on fire. Share conversions are a normal course of business, and the APE/AMC spread should have theoretically vanished by March 14 if things went to plan. These moves have obviously frustrated arbitrage traders. The theater chain is now barred from amending its certificate of incorporation until at least April 27. Shares of AMC Entertainment (NYSE: AMC) surged 23% on Monday after a Delaware court announced it would delay the conversion of APE units into common stock.
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