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AMC Entertainment (NYSE:AMC) filed to sell 425 million more of its preferred shares. The preferred shares trade under the symbol APE (NYSE:APE).

AMC stock fell 14.5% on Sept. 26 while APE fell almost 6%. AMC recovered about one-third of its loss overnight while APE got all its loss back.

When APE began trading in August, AMC stock immediately dropped 42% due to the dilution. But since common stockholders now had two shares, the market capitalization of AMC rose. That seems to have happened again.

What's Going On?

AMC became a favored "meme stock" for retail investor havens like Wallstreetbets in 2020, and CEO Adam Aron is appealing to those investors.

Aron created APE after his shareholders resisted efforts to sell more common stock. Shareholders resisted the dilution of their interests.

The APE shares were issued to AMC shareholders as a "special dividend," with the same voting power and dividend rights as AMC. They can be converted into common stock if shareholders approve. As preferred shares, APE shares also have more rights than AMC holders in the event of bankruptcy.

Since APE should become convertible to AMC, the prices of the two should converge. So far, they haven't. Despite interest in APE from traders AMC shares still trade at double the price of APE shares, meaning there is skepticism the conversion will happen.

APE shares are marketed to small traders who made the company a "meme" on sites like Reddit's WallStreetBets two years ago.

AMC Stock: What Happens Now?

Without the support of small traders, AMC might be headed to bankruptcy court. It had about $1 billion in cash and nearly $10 billion in debt at the end of June. The company lost $122 million, 24 cents per share, in the June quarter, on revenue of $1.16 billion.

The failure of AMC would deal a huge blow to the movie industry, which depends on theaters for initial distribution. Theater chains were forced to divest their movie production companies in the late 1940s because it violated antitrust law. 

On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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