AMC loses 24%, APE gains 18% following conversion settlement

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• Court settlement means APE will convert to AMC stock.
• AMC shareholders receive 1 share dividend for every 7.5 shares.
• APE Preferred Equity units rise on agreement.
• AMC stock trades back to January lows.

AMC Entertainment (AMC) stock has lost nearly a quarter of its value in Tuesday's premarket following news late Monday that AMC had agreed to a binding settlement with shareholders over the creation of its APE Preferred Equity units. AMC stock is down 23.5% to $3.91, while APE units have risen more than 18% to $1.75. 

AMC stock news: AMC shareholders left with 37.7% of company

The agreement with the shareholder litigants was apparently agreed to on Sunday but only was filed with the Securities & Exchange Commission (SEC) late Monday. The agreement means that AMC can now move forward with expanding the limit on its pre-split common shares from “524,173,073 to 550,000,000 shares of Class A common stock” and its plan to effect a 1-for-10 reverse stock split. These were both decided on at AMC's mid-March shareholder meeting.

If AMC receives court approval, then on a post-reverse split basis AMC shareholders will receive 1 share of common stock for every 7.5 shares held. This equates to a 13.3% dividend, but of course that just dilutes the existing share base.

More importantly, AMC shareholders will be further diluted by the conversion of APE Preferred Equity units into AMC stock. Following the special 1 share dividend, there will be 58,841,805 total shares of AMC stock. However, based on the post-conversion/post-reverse stock split total share count of 156,260,885 AMC shares listed in the filing, the 58.8 million shares of original common stock will be joined by 97,420,080 shares coverted from the APE units. This would mean current AMC shareholders only get approximately 37.7% of AMC ownership. 

AMC was sure to signal that all of these activities will only take place if the court lifts its “status quo order”. Believing the agreement is a foregone conclusion, on Tuesday Twitter was aflutter with jokes and denunciations of the plan, which appears to greatly favor APE holders. 

AMC stock forecast

AMC stock is back near early January's low point near $3.80. There is no certainty it will stay here though. Before meme stock mania back in late January 2021, AMC found support during much of 2020 at $1.20 a share. That was of course when AMC was staring bankruptcy dead in the face though. Now with rumors that Amazon (AMZN) could be interested in an acquistion, many shareholders will be willing to wait it out. This aggreement will likely make some AMC Apes willing to finally throw in the towel.

AMC daily chart