AMC Entertainment Stock News: Shareholders approve share sale, AMC tanks 14%

• AMC Entertainment stock loses 15% on Tuesday.
• Shareholder meeting approved 10-for-1 reverse stock split.
• AMC now has shareholder agreement to sell more equity.
• AMC stock should break below support at $3.80 in coming months.

AMC Entertainment (AMC) stock lost 14% of its value on Tuesday after management suceeded in getting the majority of its shareholders to agree to sell more equity. This has been a sticking point for many AMC Apes who flooded into the cinema stock in January 2021 and do not want to see their shares diluted. Management on the other hand sees the need to pay off its heavy debt load acquired during the pandemic when movie theatres were closed.

AMC closed down 14% on Tuesday to $4.64. Shares have lost another 1.5% in Wednesday's premarket, while the NASDAQ futures are down a sizable 0.9%.

AMC stock news: 1-for-10 reverse split approved

Tuesday's meeting cemented CEO Adam Aron's long-time strategy of raising equity in order to pay down the company's debt load. At the end of 2022, AMC had $10 billion in debt and $4.5 billion in net debt. In addition to the other votes, shareholders approved a 1-for-10 stock split, which signals they are aware of how much further dilution will sink AMC's current share price.

“The surest way to combat naysayers and prophets of doom is to keep our cash reserves robust, manage our balance sheet smartly, and operate our company as best we know how,” CEO Adam Aron told shareholders on Tuesday's conference call.

Adam Aron was already successful last year when he created the AMC preferred equity units (APE) , which do not need AMC shareholder approval to sell. This allowed Aron to raise money to pay off a significant tranche of debt. Tuesday's agreement likely opens the door for AMC to convert its APE units, which currently represent 1/100th of an AMC preferred share, to be converted into AMC common stock. 

This has led shareholders to sell out of their positions as the writing is on the wall that serious dilution is ahead. Aron, for his part, thinks the dilution is absolutely necessary.

"Shareholders overwhelmingly approved combining AMC common shares and APE units, with total votes 87% in favor, while significantly increasing the capacity to issue additional common shares, with total votes 88% in favor," said Adam Aron in a statement following the meeting. "If implemented, AMC should have an ability to raise a significant amount of equity capital in the months and years ahead."

AMC stock forecast

AMC's daily stock chart is of less use to us now that we know dilution is in the cards. If you own AMC at the moment, it would be best to sell. Even a 20% dilution would likely send AMC stock below current support at $3.80. The 9-day moving average has drifted below the 21-day moving average recently, which is more evidence that Tuesday's 15% loss will not be the end of this pullback. Of course, there is the matter of APE units. By adding these back to AMC common shares, at least the ownership of AMC Entertainment is more certain.

AMC daily stock chart