AMC Entertainment has completed a 10:1 reverse stock split — which consolidates the number of existing shares held by investors into fewershares — ahead of a planned conversion of preferred equity units, or “APE” stock, into common shares on Friday.
The reverse split, executed Thursday, reduced the number of AMC shares by giving investors one share for every 10 they previously held, while boosting their price as the stock falls in value. Shares in the parent of AMC Theatres opened trading Thursday at $19.60 after hovering in the $2 per-share range in recent days, ahead of the reverse stock split being implemented.
The stock price then retreated in value to close down $5.18, or around 26 percent, at $14.42 on the day as Wall Street investors look ahead to the APEs-to-stock conversion. On Friday, as planned, the realignment of AMC common shares and APE units moved a step closer as the exhibitor in an SEC filing said trading in the preferred equity instruments had been suspended at the opening of financial markets, and they would be delisted from the New York Stock Exchange on Sept. 5.
Converting AMC’s APE shares after shrinking the number of shares outstanding aims to allow the exhibition giant to offer new shares for sale to strengthen its balance sheet. The APEunits — a name for the corporate tool adopted by meme stock investors — earlier worked as a new security to help AMC raisefresh capital to help pay down a hefty debt load.
But that fundraising tool was followed by AMC looking to converge the APE units and common shares to stop investors buying the lower-cost APE shares and shorting the higher-cost AMC common shares as part of an arbitrage trade.
During a recent analyst call following the release of the company’s second-quarter earnings, AMC Theatres CEO Adam Aron warned retail investors against opposing the APEs-to-stock conversion plans as that risked tipping the company into bankruptcy.
“We need to be able to raise capital if we need to. The dumbest thing we could ever do as a company is run out of cash and other companies in the industry have run out of cash. And some of the armchair quarterbacks on Twitter, who give me advice every day, if I follow their suggestions, we would have run out of cash a long time ago. If I follow their suggestions now, we’ll run out of cash,” Aron argued.
On Aug. 11, a Delaware Court judge removed the last hurdles to AMC continuing to sell stock to reduce its high debt load by synchronizing the value of APEs and common shares.
Aug. 25, 9:30 a.m. Updated to indicate trading in APE units had been suspended at the opening of financial markets on Friday.
FAQs
All holders of AMC will receive 1 share of AMC in exchange for every 10 AMC shares held at the close of trading on August 23, 2023. This will affect all AMC shareholders.
What does the AMC reverse split mean? ›
On August 24, 2023, AMC Entertainment Holdings (AMC) completed a 1-for-10 reverse stock split. That means that for every 10 shares owned, AMC stakeholders were issued one new share. If they previously had 100 shares, they now had just 10 shares. In other words, the total share count was been reduced by 10 times.
Is a reverse stock split good or bad for shareholders? ›
Many times reverse splits are viewed negatively, as they signal that a company's share price has declined significantly, possibly putting it at risk of being delisted. The higher-priced shares following the split may also be less attractive to certain retail investors who prefer stocks with lower sticker prices.
How do you calculate shares after a reverse split? ›
The post-reverse split share price is calculated by multiplying by the number of shares consolidated into one share, which is ten in our illustrative scenario. Initially, the market value of your equity is worth $180.00 (200 Shares × $0.90), and after the reverse split, they are still worth $180.00 (20 Shares × $9.00).
Do I lose my shares in a reverse split? ›
During a reverse stock split, the company's market capitalization doesn't change, and neither does the total value of your shares. What does change is the number of shares you own and how much each share is worth. If you own 50 shares of a company valued at $10 per share, your investment is worth $500.
What happens in a reverse stock split if you don t have enough shares? ›
Reverse splits also can diminish or force out small investors, who may not have enough shares to be consolidated. For example, if a company decided on a 1-for-50 reverse split, any holders of fewer than 50 shares wouldn't be offered a fractional new share. They would instead be paid cash for their shares.
Is it better to buy before or after a reverse stock split? ›
One way is to buy shares of the company before the reverse split occurs with the plan to sell them soon afterwards. This can be profitable if the company's stock price increases after the split. Another way to make money from a reverse stock split is to short sell the stock of the company.
Why do you lose money on a reverse split? ›
In some reverse stock splits, small shareholders are "cashed out" (receiving a proportionate amount of cash in lieu of partial shares) so that they no longer own the company's shares. Investors may lose money as a result of fluctuations in trading prices following reverse stock splits.
Can a reverse stock split cause a short squeeze? ›
Several of these studies allude to the notion that reverse stock splits might attract short selling activity. Kadiyala and Vetsuypens (2002) suggest that if reverse stock splits enhance liquidity, as documented in Han (1995), both the risk of a short squeeze and the opportunity cost of a short sale are lowered.
Is a share split good or bad? ›
Are Stock Splits Good or Bad? Stock splits are generally done when the stock price of a company has risen so high that it might become an impediment to new investors. Therefore, a split is often the result of growth or the prospects of future growth, and it's a positive signal.
Disadvantages of a Stock Split
A company cannot rely on a stock split to increase its value or market cap. A stock split divides the existing shares, thus keeping the market cap the same as before. Not to forget, a company must invest some amount to conduct a stock split.
Can I sell after a reverse split? ›
Selling before a reverse stock split is a good idea, but selling after the reverse stock split is not. Since you can sell before and after a reverse stock split, selling during one is optional. The main advantage of selling before the reverse stock split is that you don't have to wait around for it to happen.
What does a 10 to 1 reverse stock split mean? ›
For example, in a one-for-ten (1:10) reverse split, shareholders receive one share of the company's new stock for every 10 shares that they owned. Each new share would be worth ten times that of the shares before the split.
What does a 10 to 1 stock split mean? ›
Nvidia plans a "10-for-1" split, so shareholders will get nine new shares for every share they already own. The economic value of their holdings won't change, so they will still be entitled to the same overall dividend payouts, and still have the same voting rights.
How many stocks will I get after split? ›
The most common split ratios are 2-for-1 or 3-for-1 (sometimes denoted as 2:1 or 3:1). This means for every share held before the split, each stockholder will have two or three shares, respectively, after the split.
How many AMC shares will I have after conversion? ›
Once this conversion is complete, for every 10 shares of APE you had owned at market close on August 24, 2023, you will receive 1 share of AMC. This will affect fractional shares proportionately. How will this impact your holdings? Each of your APE shares will be exchanged for 0.1 AMC share.
What is the reverse split ratio for AMC? ›
AMC's Reverse Stock Split
On August 24, AMC Entertainment (AMC) will implement a reverse stock split of the company's common shares at a ratio of 10:1.
What was the price of AMC stock before the reverse split? ›
Shares in the parent of AMC Theatres opened trading Thursday at $19.60 after hovering in the $2 per-share range in recent days, ahead of the reverse stock split being implemented.
