AMC have launched a new preferred share class — called “APE” in a nod to meme investors
APE has begun trading today,
Capital raise comes 5 months after it bought a stake in a gold mining company
To jog your memories, AMC is the movie theatre chain that, alongside Gamestop, was drawn into the meme-stock craze in January 2021, as Reddit forum WallStreetBets waged war on Wall Street short sellers.
The stock multiplied 10X from $2 to north of $20 over that two-week period, before retracing to $5.50. Then came another round of meme-frenzy in May 2021, this time accelerating all the way up to $61.34.
At press time, it trades at $11, down 40% this morning as APE has floated.
What is APE?
APE stands for “AMC Preferred Equity”, with the APE acronym being a nod to the retail investors who turned the company around, who refer to themselves as “apes”.
The APE units were distributed to AMC shareholders last week and began trading this morning. While they flounder around trying to find their equilibrium price, the price of AMC shares has tanked, as the stock becomes further diluted – one could pretty much view this as a stock split.
The initial APE units were distributed free of charge to AMC shareholders, but the company’s filings outline that the company has the right to sell more of the units in the future and, vitally, it does not need shareholder approval to do so. Currently authorised to issue up to 1 billion APE units, today’s float is for just over half that number.
In reality, the APE initiative is nothing more than an aggressive marketing push to try to appeal to the meme lovers, and a roundabout way of raising capital following a pandemic that shut theatres across the US and put AMC under the cosh.
AMC previously capitalised on its elevated meme valuation to raise capital before but a second attempt was not approved by shareholders. Therefore, the floating of APE units pretty much achieves the same thing – much to the shareholders’ chagrin.
Adam Aron, CEO of AMC on the capital raise
What does the future hold for AMC?
Forecasting the future moves of a meme stock is akin to finding a needle in a haystack (and if that haystack defied all laws of physics, as memes tend to distort ones perception of logic). Having said that, the plunge in the AMC share price is hardly a surprise, as this round of dilution comes amid a very different climate than the previous capital raise.
Previously, the fundraising arrived as stimmy cheques hit bank accounts, the Fed has its finger squarely on the money printer, and financial assets were only going up. Today, we are facing an increasingly ominous energy crisis, inflation that has spiralled out of control and a hawkish Fed doing whatever it can to rein in the economy without triggering a recession – a prospect that seems increasingly remote.
There is nothing that fuels investor concern quite like an impending recession and rising interest rates, so that’s …not good news. AMC reported more than $10 billion in debt and other liabilities at the end of the second quarter. Its rival Cineworld has also filed for bankruptcy this week.