Benzinga - by Shanthi Rexaline, Benzinga Editor. Shares of movie theater chain AMC Entertainment Holdings, Inc. (NYSE:AMC) slumped in premarket trading on Monday.
The downward move is in reaction to the Delaware Chancery Court’s ruling on Friday that the company can go ahead and increase the number of authorized shares and also do a reverse split of the shares in the ratio of 1-for-10.
This will allow conversion of the all outstanding AMC preferred shares, coded APE, into AMC common shares. These proposals were previously approved by 72% of shareholders and 91% of APE unit holders.
Commenting on the development, CEO Adam Aron said the court decision will allow AMC to raise additional equity capital, which can be used to shore up the company’s cash reserves and pay down debt, invest in growth initiatives.
“With the convergence of AMC common shares and APE units, we hope and expect to be able to raise equity capital more efficiently and with less dilution when the APE were trading separately at a significant discount to AMC common shares,” Aron said.
Any dilution of equity capital is negative for the stock, as it increases the supply of shares and in turn, pushes down the price.
In premarket trading, AMC shares traded down 27.38% at $3.82, according to Benzinga Pro data. The APE preferred unit jumped 26.40% to $2.25.
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