Meme stock AMC jumps as investors cheer stock conversion plan halt

SHARES of retail traders’ favourite AMC Entertainment Holdings soared on Monday (Jul 24) after a US court blocked the theatre chain’s stock conversion plan that risked diluting investors’ holdings.

A Delaware court judge had on Friday declined to approve the proposed settlement by AMC in a case that has alleged the company planned to convert preferred stock to common, to circumvent the will of common stock holders who had opposed the issuing of new shares.

AMC had told investors it was burning cash at an unsustainable rate and warned that an inability to raise capital could force it into bankruptcy. It had suggested selling more shares would enable it to pay down some of its US$5.1 billion debt.

The company has filed a revised petition for the stock conversion plan addressing the Delaware court’s concerns, chief executive officer Adam Aron said on Sunday.

“Right now there’s a fantasy of full recovery in movie theatre and as a result, equity holders are happy they won’t be massively diluted by the conversion,” said Thomas Hayes, managing member of Great Hill Capital in New York.

In a win for theatre chains globally, the much-hyped movies Barbie and Oppenheimer drew large crowds after sluggish ticket sales in June and July.

The stock was trending on investor-focused social media stocktwits.com, indicating retail traders’ interest.

With about 28 per cent of AMC’s publicly available shares under short position, analytics firm Ortex expected a large part of Monday’s buy pressure to be generated by a short squeeze.

The bearish investors stand to take a US$270 million hit in paper losses, Ortex said.

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“Trying to short AMC during a short squeeze is about as smart as burning money,” said Matthew Tuttle, CEO at Tuttle Capital Management, adding that there is “not much juice left in the squeeze”.

Tuttle said he was looking at opportunities in stocks gaining in sympathy with AMC, such as GameStop and other shares with high short interest. REUTERS