AMC, APE Stock Investors on Watch for Judge Decision


  • AMC Entertainment Preferred Equity Units (APE) and AMC Entertainment (AMC) shareholders are waiting on a conversion decision from Vice Chancellor Morgan Zurn.
  • Meanwhile, the cost to borrow (CTB) fee for AMC has exploded higher, while APE’s fee has remained subdued.
  • AMC stock is up more than 7% so far this year.
AMC theater in Glendale, Arizona. AMC stock.
Source: JJava Designs / Shutterstock

Last month, the two-day hearing to decide on the conversion of AMC Entertainment Preferred Equity Units (NYSE:APE) into AMC Entertainment (NYSE:AMC) stock came to an end. However, Vice Chancellor Morgan Zurn has still not made a decision on the conversion and did not provide a specific date for her decision, either. Zurn also disclosed that she would not provide advance notice before the decision is announced.

If approved, the settlement would allow for the conversion of outstanding APE into AMC, while AMC shareholders would receive about $129 million in common stock. In addition, Special Master Corinne Elise Amato had previously issued a recommendation in favor of the conversion.

However, several shareholders are opposed to the settlement, as evidenced by the objections of over 2,800 people. An attorney for one objector stated that AMC “stabbed them in the back” following a shareholder vote that factored in votes from both AMC and APE shareholders.

AMC, APE Stock Investors Wait for a Conversion Decision

Meanwhile, the cost to borrow (CTB) fee for AMC stock has surged dramatically ahead of the decision. As of July 7, AMC had an unusually high fee of 947%, up from 577% on July 3 and 197% on June 26. The CTB fee rises when short seller demand is high and falls when it is low. At the same time, a high fee could also influence short sellers to sell out of their position, which could result in a short squeeze.

The conversion decision has attracted a slew of arbitrage traders. As explained by The Street, “This is because, theoretically, both shares have the same voting rights and represent the same company.”

If AMC and APE have the same voting rights and represent the same company, then their prices should be similar. However, this isn’t the case, as AMC trades at more than $2 above APE. The arbitrage traders are betting that the prices of AMC and APE will converge in the event of a conversion. This explains why so many traders are shorting AMC stock, driving up the CTB fee as a result. In comparison, APE has a CTB fee of just 4.14%.

On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines. 

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