Just a month after announcing the plans to sell 25 million additional shares, AMC Entertainment (NYSE:AMC) has scrapped the move. This means additional shares are off the table for the upcoming annual shareholder meeting.
Why did AMC cancel the plans for a second stock dilution this year? What does it mean for investors in the popular meme stock?
AMC executives cite torn opinions for decision to scrap additional shares
According to the company's report of unscheduled events (form 8-K with the SEC), AMC "has determined not to seek stockholder approval" for the issuance of 25 million shares. This would have brought the total number of Class A common stock shares to 549.17 million. Instead, AMC is scrapping the plan in favor of a delayed vote sometime in 2022.
AMC CEO Adam Aron wrote on Twitter, "It’s no secret I think shareholders should authorize 25 million more AMC shares. But what YOU think is important to us. Many yes, many no. AMC does not want to proceed with such a split. So, we’re cancelling the July vote on more shares. And no more such requests in 2021."
According to Aron, the broad shareholder consensus is split between whether or not to add new shares. He is in favor of the dilution but doesn't want such obvious contention even if the vote were to go through.
Don't expect another share dilution from AMC in 2021
AMC diluted its stock in January to the tune of 44.8 million shares. This was done by converting 2026 convertible senior notes into Class A common stock. At the time, the addition of new stock plus a surge in interest of shorted securities joined forces to help AMC stock deliver about 560 percent in returns over the course of the month.
Now, AMC stock has been the target for even more investor interest, so much so that fervent traders have practically whittled away the company's outstanding shares. When AMC announced 25 million additional shares, its stock nearly doubled.
Since the announcement that the company is scrapping its plans to increase outstanding share availability, AMC stock has come close to a 10 percent correction. The shares fell about 20 percent from June 30 to July 7, with the latest news augmenting an already volatile period.
Some meme stock investors are pulling out of AMC, but many remain committed
AMC has been a WallStreetBets target for months, with the stock's growth outlasting many experts' predictions. Some investors are pulling out, as evidenced by the drop in market cap. However, many view this additional stock cancelation as a good thing.
One Reddit user wrote, "The CEO has f——ed over investors in the past by trying to continually dilute the float with adding more shares." However, they followed up with the fact that the company has really pivoted to reconstruct their business model to become a success once COVID-19 is no longer hindering the world from being normal again, thus, making AMC still a very big play."