Shares of movie chain and meme-shopping favorite AMC fell on Monday as a rival warned of potential bankruptcy and a new class of preferred stock hit the market.
AMC’s stock fell nearly 42%, building on a loss of more than 26% last week. AMC’s new preferred stock was likely a major reason for the decline.
The theater chain’s “APE units”, a tool for the company to potentially raise additional funds in the future, began trading on Monday after being distributed to investors as a dividend. The new share class resembles a stock split in some respects. The combined value of one AMC share and one APE unit at Monday’s close was about 8.7% lower than Friday’s AMC closing price. When adjusted to the price of APE in its first trade, AMC shares were down 5.5% on Monday.
“It’s basically a two-for-one stock split and I expect that once it becomes effective the price per share will drop by around 50%. Just like that normally happens with a two-for-one stock split,” Jay said. Ritter, the Cordell Professor of Finance at the University of Florida.
AMC CEO Adam Aron warned of the potential move over the weekend.
“Remember that with APE seeing its first trade on the NYSE sometime tomorrow morning, the value of your AMC investment will be the combination of your AMC shares and your new APE units. One AMC share plus one new APE unit added together – compared to just one AMC share before,” Aron wrote on Twitter on Sunday.
The drop also comes as rival Cineworld said on Monday it was considering filing for bankruptcy. After Cineworld issued a liquidity stance warning last week, AMC CEO Adam Aron said in a statement that “we remain confident about AMC’s future” and that the company is ” pretty optimistic” about upcoming movies in Q4 and 2023.
Even though 2022 has seen big theatrical hits like “Top Gun: Maverick” and studio execs have signaled interest in returning to theaters instead of streaming-only releases, the US box office remains well below its levels. before the pandemic.
AMC reported more than $5 billion in long-term debt at the end of the second quarter. This total climbs to more than $10 billion when including lease obligations and other long-term liabilities.
The recent decline in AMC shares coincides with the sharp reversal of Bed Bath & Beyond. Both names have become meme stocks, with a large percentage of retail investors and social media followings. Bed Bath & Beyond fell more than 40% on Friday after activist investor Ryan Cohen revealed he had sold his entire stake in the business.
– CNBC’s Kristina Partsinevelos contributed to this report.