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Meme-stock AMC plans to convert more shares in court

BusinessPersonal FinanceMeme-stock AMC plans to convert more shares in court
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The spectacle of a favorite meme stock, amc entertainment holdings inc. (NYSE: AMC) Wall Street continues to play out on the big screen.

On March 14, the shareholders voted to issue new shares of stock with the hope that a new inflow of cash could prevent bankruptcy.

Following the news, AMC shares closed down 15.02% at $4.64.

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The AMC’s financial moves are taking place against the backdrop of litigation.

The company said in January that it would hold a special shareholders’ meeting on March 14 with the objective of issuing more shares as well as approving a reverse split of the company’s stock. It will convert its preferred shares, AMC Preferred Equity (NYSE: APE) Units in shares of common stock.

preferred shareholder first in line

Preferred shares are equity with some characteristics of debt. For example, preferred shareholders are ahead of common shareholders in line to receive dividends, and they also have a greater claim on assets in a corporate liquidation, although less than the claim of bondholders. You can see why preferred treatment can attract investors in the case of a troubled company like AMC.

However, there is a tradeoff: Preferred shareholders don’t get any voting rights in how the company is run.

But APE faced a monkey wrench when Pennsylvania’s Allegheny County Employees’ Retirement System It filed a lawsuit against the AMC claiming that by issuing APE shares, the AMC was acting against the interests of common shareholders, who do not further dilute their ownership stake.

A judge ruled that the March 14 vote could go ahead, but that implementation of the share conversion would have to wait until a decision about the substance of the pension fund’s claims was made.

The matter has been fixed for hearing on April 27.

meme-stock mania

AMC became part of the meme-stock trading frenzy in 2021. That new cash from retail investors sent share prices to a high of $72.62 in May of that year, but it ultimately wasn’t enough to lift the company’s fortunes.

Turbo-charged trading kicks off in Jan 2021, with the stock surging 50% in the week ended Jan 22. With that windfall, the company turned to the debt and equity markets and Raised $917 in New Capital, The following week, the stock advanced more than 277%.

The company raised over $2 billion in 2021. But troubles persisted, and not all were unique to AMC.

The entire film exhibition industry was battered in 2020, but according to polling organization Gallup, Theater attendance was running low Even before the Covid-driven shutdown in 2020.

In a January 2022 report, Gallup stated that a 2019 survey “found that moviegoing was already lower than it was in 2001. This trend was also documented by film industry analysts, who noted that home The increase in streaming services resulted in lower attendance at movie theaters.

According to entertainment-industry trade publication The Hollywood ReporterThe good news: Domestic box office revenue is up 37 percent this year. The bad: It’s down 22 percent from 2019.

Attendance still below 2019 levels

Third Bridge analyst Jamie Lumley amplified that notion in a statement. “AMC is looking at North American box office takedowns in 2022, down nearly 35% from 2019,” he wrote. “We have heard from our experts that the next two to three years will potentially see box office gross down 30% to 40% from pre-pandemic revenues, which raises serious questions about how AMC can reduce losses and maintain its Can manage the debt load.”

“Our experts highlight that AMC has limited headroom to increase concession and ticket prices. Although there is some reduction in entertainment spending in a recessionary environment, overall this is not conducive to AMC driving revenue growth,” Lumley said.

AMC isn’t the only one seeing a decline in attendance.

Other chains eyeing profitability

However, fellow theater chain Cinemark Holdings Inc. (NYSE: CNK) And Marcus Corporation (NYSE: MCS), with special theater director IMAX Corporation (NYSE: IMAX) All are expected to make a profit this year, while analysts believe that the AMC is in the red. However, all are fighting a battle of low attendance.

Marketbeat Analyst Data Show Consensus rating of “Reduce” For AMC shares, absolutely no confidence vote. The price target is $3.12, which is down 32.76% from March 14 close. Shares had already lost 19.30% in the past three months, though they have gained 14% since the beginning of the year.

on shaky ground

In addition to the recent trends, the ongoing play of the theater series has not received great reviews.

“By holding this vote, AMC underscores the fact that the company is on shaky ground and needs capital to help manage an increasingly difficult environment for theater operators,” Lumley wrote.

“The result of the vote shows that there is an opportunity for AMCs to raise much-needed capital, but there is still some uncertainty ahead of the hearing in April. However, even with the additional funding, the road ahead for AMCs has its fair share of challenges. is,” he said.

The views and opinions expressed here are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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