Is there a difference between "intriguing" and "wise"? If so, here's one of the former. :)
Asset: APE (AMC Entertainment Holdings Inc. Preferred Equity Unit)
Price: $3.04 as of 10:48 am EST, per Yahoo Finance.
Rationale: High likelihood of being merged with its sister stock, ticker AMC (AMC Entertainment Holdings Inc., - currently about $6.60), in an event that would give each APE the same price as each AMC, presumably at a value higher than the price of APE though lower than the price of AMC. This is an arbitrage play that presumes the prices will converge as planned.
"High" is a judgment call, based on reading yesterday's Money Stuff column by Matt Levine (link below). Levine wrote previously that after AMC became a meme stock, management leaned into its status, selling new shares to harvest capital from the arguably senseless investor enthusiasm; he also previously wrote that in such a situation, it probably makes sense to take the money and find uses for it. Due to limitations on the number of common shares (AMC) issuable, management created APEs, which are fractional units of preferred stock. The new class is intended to ultimately merge with the AMC shares such that 1/100 of a preferred share = one AMC share; one APE already = 1/100 of a preferred share.
The whole exercise occurred due to the difficulty of getting retail shareholders to vote. To change the number of shares issuable and take full advantage of investor willingness to buy shares, 50% of all shares must vote yes, not just 50% of shares that vote. This doesn't happen in a straight vote because retail shareholders don't bother. The preferred share issuance was possible without such a vote, and was done with terms that do allow passage of a merger between shares based only on a majority of the shares that vote on the proposition. Management already sold a large enough block of APEs to a single (institutional?) investor that the vote to approve merger now seems likely, Levine suggests. Assuming it happens, the price of APE and AMC will converge on some middle value.
https://www.bloomberg.com/opinion/articles/2023-02-01/amc-has-some-clever-apesWhether that value is higher than today's APE value is subject to caveats of course, including:
1. No telling whether management will find enough use for the money to keep the share price above current APE price.
2. If the merge doesn't happen, you're stuck with APE as is - a stranded bit of preferred in a company with inflated unclear value.
3. But wait, part of the current value is anticipation of the merge. If merge fails, logically APE price should go down down down.
4. Even at current price, APE is a penny stock. Among other things, you will need to enable purchase of penny stocks to buy it. That's what my brokerage required, anyway.
ETA 2:50 EST, 12:50 forum time: What's the correct convergence price, based on current share prices and numbers of shared issued? The number of APEs vs AMC is nearly 2:1, with perhaps more APEs being issued, so a rough starting point would be raise the APE price by one third of the difference from AMC. For example:
6.20 AMC (5 minutes ago)
2.83 APE (5 minutes ago)
---
3.37 difference
divide by 3
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1.12 addition to APE
2.83
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3.95 projected price of both APE and AMC after conversion, supposing current value is spread out among the new shares
So maybe maybe maybe 40% gain? (1.12 / 2.83 = .395)
PS. Fwiw, below is a link to the proposed charter amendment for turning the APEs into common stock. It anticipates the vote to occur (or be recorded?) in a special shareholder meeting March 14 (first mentioned page 1), the last day of trading for APEs to be March 14 (page 3) if the merge is approved, and I assume the first day of the new common stock to trade being March 15. From details like this in the SEC filing, management appears to think it's a done deal.
https://www.sec.gov/Archives/edgar/data/1411579/000110465923007550/tm232700-1_pre14a.htm#tPN2ETA: useful part above; remainder is personal details in case of reader interest.
4. Despite high stated number of shares traded per Yahoo Finance, I appear to have moved the market by making orders of less than $10,000. Perhaps this volatility implies many bots, a thin market, difficulty getting out without crashing prices . <--ETA 1:44 EST below
I could be wrong about 4. It's the first time I ever bought a penny stock. It appeared that millions of shares had traded, so I assumed a couple thousand would make little difference. I wasn't quite dumb enough to enter a market order, even though "bid" and "ask" were something like $2.80 and $2.81 at the time, but I put in a limit order above the current price (say 2.85) because I wanted a quick response. My order filled four cents above bid/ask midpoint. I wanted more, acted similarly twice, and you can see in the minute by minute charts that my 3 orders appear to have triggered a prices just happened rise from 2.80 to the low 2.90s in about 10 minutes during my orders, establishing a big spike for the day. ETA 11:26 EST - now $3.07.
Maybe Probably it wasn't me. I set limit on a fourth order of 2.90; the price rose above that, not due to me. I cancelled the order and the price rose again. Did I trigger excitement in others, or just happen to catch a wave unrelated to me?
ETA 1:44 EST, aka 11:44 am forum time: Reviewing today's AMC fluctuations, the common stock (ticker AMC) started shooting up 8 or 10 minutes before my trades. APE followed suit with a lag. Presumably I caught the first half of that copycat surge, but my tiny trades had little effect. Strikes above are from this edit.
Like I said, intriguing but maybe not wise. Will be appreciatively reading any remarks from wiser readers while I undergo this live-fire education.