Why is AMC Entertainment collapsing today?

What happened

Shares of AMC Entertainment (AMC 13.02%) fell 7.2% at 10:41 a.m. ET on Friday after the company announced its second quarter results yesterday after market close, but everyone wanted to talk about the special preferred stock dividend it will issue on a basis of 1 for 1. .

The special dividend will be issued to shareholders of record from August 15 and paid on August 19. It will trade under the symbol APE, which technically refers to “AMC Preferred Equity”, but is clearly also a nod to investors. who have hauled the stock for the past year or so and who collectively refer to themselves as “monkeys”.

So what

There are several reasons why AMC issues preferred stock. Because the theater owner raised huge sums of money during the pandemic by issuing heaps of new shares, he leveraged his ability to raise more money that way.

Still, AMC needs more money to survive. Although CEO Adam Aron said the new issue would not be “yet” dilutive, he also told investors in his letter to shareholders that APE would give him the flexibility “to raise money if we need it or if we wish, which greatly reduces any risk of survival”.

Still, AMC is about $5.5 billion in debt, and while it reported revenue of $1.1 billion versus $445 million last year, that’s still significantly below revenue of $1. .5 billion that it reported in 2019. And although its net loss fell from $344 million to $121 million. , three years ago, its profits were $49 million. Attendance was 59 million this quarter, 97 million in 2019.

Now what

Aron says preferred stock will be a way to effect the number of shares that investors demand. Although Aron claims AMC has seen no evidence of synthetic stocks, by issuing the stock, which will only go to shareholders, it will uncover any fake stocks that may exist.

AMC will also issue non-fungible tokens (NFTs) to investors to celebrate the preferred stock issuance.

Rich Duprey has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.

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