TheCorporateCounsel.net

When it comes to finding unconventional ways to raise cash, AMC will find a way – and selling equity to do it is a key part of the meme stock playbook, as another retailer’s offering this week showed. Two years ago, the company abandoned a proposal to increase its authorized number of common shares because its retail investors weren’t showing up to deliver the votes needed for approval of the charter amendment. That temporarily shut off the spigot of raising capital through stock sales.

Undeterred, last summer AMC used its blank check preferred provision to issue a new class of shares: APEs (that stands for “AMC Preferred Equity,” of course). Here’s the Form 8-K they filed at the time. Each APE unit has terms identical to 1/100th of a share of common stock – including voting rights – and will automatically convert to common stock if & when AMC is able to issue enough common shares to cover the conversion of all of the APEs.

Now, with the APEs unfortunately trading at a 65% discount to the equivalent common shares as of year-end, AMC is going back to its common shareholders to once again seek approval for a higher number of authorized common shares, which would trigger the preferred stock conversion, as well as to effect a 1-for-10 reverse stock split for the existing common shares. The interesting part is that with this go-round, it will include votes from the APE holders – and AMC baked in a key provision to make approval more likely. In a column last week, Bloomberg’s Matt Levine pointed out that AMC’s deposit agreement for the APEs includes this language:

In the absence of specific instructions from Holders of Receipts, the Depositary will vote the Preferred Stock represented by the AMC Preferred Equity Units evidenced by the Receipts of such Holders proportionately with votes cast pursuant to instructions received from the other Holders.

Proportionate voting! This is a bold move as at least one major brokerage firm has moved away from proportionate voting for common stock and asset managers are pushing pass-through voting despite the generally low voter turnout from retail investors. It’s too soon to know whether pass-through voting will do more harm than good to individual shareholders – the early consensus is that it will just make solicitations more complicated & costly for companies, and give proxy advisors more influence. For this specific charter amendment – and with the preferred stock in the mix – AMC has possibly found a way to bring in a vote despite these hurdles.

– Liz Dunshee