I was going to stay out of this whole mess, but what Adam Aron is doing here is absolutely disgusting and I need to piece out whats going on here.
So to preface, AMC is in dire straits:
- Its bonds are trading at 60 cents on the dollar. This basically means the markets don't believe AMC will be able to pay out its debt
- The company has roughly $1B cash vs roughly $5B in debt and $5B in lease liabilities
- They lost money this quarter despite travel and service oriented companies just killing it.
- Additionally all signs point to a weaker Q3 and Q4 going forward so it is likely Q2 will be their strongest quarter
- And to top it all off, they are unable to issue any shares because retail investors have blocked off any common stock dilution
So how does a company get out of this without declaring bankruptcy? They don't. Unless you're Adam Aron.
Well here is Adam's master plan. The $0.01/share special dividend.
The Preferred Equity Unit.
Here are its important takeaways:
- Each Preferred Equity Unit can be exchanged for 1 common share, but only if the Company proposes and investors vote to approve an increase in the number of authorized shares of Common Stock
- Each Preferred Equity Unit represents one hundredth of a share in the company's Preferred Stock (Note: Preferred Equity Unit =/= Preferred Stock!)
- Each Preferred Stock is in turn potentially convertible into 100 shares of Common Stock
Well retail will never vote for dilution... lets move onto the filings.
- Holders of the Preferred Stock will initially be entitled to one hundred (100) votes per share and will vote together with the holders of common stock Pic
- We may offer and sell, from time to time in one or more offerings, shares of our Class A common stock, par value $0.01 (the “common stock”), preferred stock, subscription rights, depositary shares, warrants
- Authorized capital stock of 50M shares of Preferred Stock (45M after the ~500M Preferred Equity Units are delivered) Pic
Here is where things get dicey. The company is going to issue up to 50M of these preferred shares that have 100 votes per share versus the current 510M common shares outstanding. What this means is owning 5.1 million preferred shares gives you the same amount of votes as all 510M common shares. Additionally, you the shareholder, will receive Preferred Equity Units, not Preferred Stock. They can issue Preferred Stock, but are only giving you Preferred Equity Units.
Circling back to the beginning, why does Adam Aron care about these votes so much? Its because AMC needs cash bad. AMC really, really wants to issue more shares, but retail traders understand that dilution = bad and is not willing to allow AMC to screw them over. Well here comes their fix. With these preferred shares, retail traders will not have a choice in the matter when share issuance comes up for a vote the next time around.
Adam Aron is selling you this whole special dividend as a good thing, something to hurt the short sellers, when in reality its anything but. The Preferred Equity Unit will result in massive dilution for common stock owners. This is not a good thing. If you are buying in the hopes of a short squeeze, AMC's actions today directly work