AMC and APE CONVERSION - Long APE, short AMCOn March 13, AMC and APE shareholders will vote to convert APE into AMC stock and will reverse split the stock 10/1. AMC has stacked the vote in favor of APE so the outcome is guaranteed.
But what will be the price of the combined stock after the conversion? There are roughly 500M AMC shares, and will be close to 1000M APE shares at time of conversion. A total of 1.5 Billion shares, or about 3x the current number of AMC shares.
APE currently trades at about 1/2 the price of AMC. ($2.40-$2.60 APE/ $4.50-5.50 AMC)
AMC March 17 put options currently are pricing AMC at around $2.50 after conversion.
I believe the correct equation for calculating the post-conversion share price of AMC is to multiply APE by 2 (because there are twice as many APE shares as AMC shares), and add it to the share price of AMC. Then take the combined total and divide by 3 because there will be 3x the current number of AMC shares after conversion. If conversion were to happen today, the combined share price would be $3.35. I think it could be anywhere from $2 to $4 when it happens. Of course the reverse stock split will cause the price to be 10X that, so we’ll see it $20-$40.
AMC has been doing lots of funky math games with their stock in order to try to get the meme thing going again, so they can sell more shares and buy down debt to stave off foreclosure. Their debt service has been more than their income. You have to hand it to them for creativity, but will it work?
Once conversion and reverse split happens, there will be 150 million shares at maybe $30/ share. AMC is planning on selling another 350 million shares, which will bring the price back down to $10 per share. If you are an AMC HODLer, that means less than $1 per share before reverse split.
Current strategy involves holding APE until conversion, while selling AMC calls. Shorting the stock has become too expensive for me, as hard-to-borrow interest fees are over 100%. I am also selling AMC puts, as I think the puts are priced overly-aggressive.
Price could end up at $2.40/$24 on March 17, but I am hoping it will be $3.30/$33 or greater. AMC will move down 2x as much as APE rises, and they will be same price after conversion. There is a $3 difference in price with AMC/APE, so APE will rise $1, AMC will go down $2.
Let’s see how this plays out in the next few weeks.
