AMC stock falls after shareholders approve ‘APE’ conversion

APE units, which are one hundredth of a preferred stock, have the same voting power as common stock. APE units rose 4.9% to $1.82 in Tuesday trading while AMC shares fell 15% to $4.62.

Shareholders also approved a 10-for-1 reverse stock split that was contingent on Pass the APE measurement. Institutional Shareholder Services, the influential proxy voting firm, has recommended that shareholders vote in favor of the measures.

The vote marks a win for AMC CEO Adam Aron, who has turned to unorthodox management techniques in an effort to court the company’s auspicious stock base.

“By agreeing to these proposals, and doing so by a wide margin, this is an overwhelming victory that demonstrates your determination to keep AMC a strong, innovative company and a leader in our industry,” Aaron told shareholders.

The company said that 88% of the votes cast approved the first measure, while 11.2% of the votes were against the measure. About 0.8% of the votes abstained.

The APE units began trading in August, after the company provided each AMC shareholder with one APE unit for each common share they owned. With APE units in circulation, AMC was able to sell more of them to raise money. But since APE units cannot currently be converted into AMC shares, they were traded at a significant discount.

Some AMC shareholders are suing the company, arguing that APE sales decimated the voting power of common shareholders who might oppose increasing the company’s stock license. The company agreed not to increase shares until a Delaware Chancery Court judge ruled on the matter. A hearing is scheduled for April 27.

Aaron said during the meeting that the shareholder vote “sends a very strong signal that we do exactly as you please.”

“AMC will have to wait for judge approval to influence the proposals if they pass at the shareholder meeting,” Wedbush analysts Alicia Reese and Michael Pachter wrote. “As the proposals passed so overwhelmingly, we believe the judge will rule in favor of AMC, except in the unlikely scenario in which the judge rules that the initial issuance of APE shares was in violation.”

Reese and Pachter maintain a $2 price target for AMC stock and a $2 price target for APE units, or a combined $4 target. They indicated that after the reverse split and conversion, the company would be able to sell 550 million shares.

“AMC will likely take future stock issuance slowly to retain its shareholder base for as long as possible,” they wrote.

Aaron said during the fourth quarter earnings call that if the vote fails, the company may have to sell more APE shares at lower prices than AMC’s combined shares. He noted that the sale of shares helped the company survive the pandemic lockdowns.

“We’re not going to forbid a capital increase, but we’re going to raise capital on much less attractive terms,” ​​Aaron said at the time. “It would cost further dilution to the share that could be fully prevented by 100% if the majority of our shareholders voted yes.”

Write to Connor Smith at [email protected]