AMC Shares Fall 27% After the Court Approves a Revised Stock-conversion Plan

After the close of trading hours on Friday, shares of AMC Entertainment Holdings Inc. (AMC) experienced a significant decline of 27%. This decline followed a decision by the Delaware Chancery Court, presided over by Judge Morgan Zurn, to grant approval to a revised stock-conversion plan. This plan, aimed at shoring up the company's financial position, remains subject to controversy.

‍

The Delaware Chancery Court's endorsement comes after the same court had previously rejected an earlier iteration of the settlement that was subsequently cleared on Friday.

‍

AMC's objective has been to convert its AMC Preferred Equity Units (APEs) into common stock, a move aimed at facilitating additional share sales to generate funds and mitigate the risk of further financial strain. This proposition, however, met resistance from numerous retail shareholders due to concerns surrounding potential dilution of their holdings.

‍

The settlement agreement endorsed by the judge and involving AMC and its shareholders will only marginally mitigate the dilution impact on common shares. This would result in a modest increase, approximately 3% collectively, in the stake held by current common shareholders, as elucidated by Judge Zurn in her ruling. Nevertheless, Judge Zurn argued that this settlement holds merit for both parties involved, as it grants the class of shareholders a greater stake in a struggling enterprise while simultaneously furnishing the company with a mechanism to secure necessary revenue.

‍

Prior to this decision, AMC communicated to its investors that it was incurring an unsustainable cash burn rate and that the approved settlement would pave the way for the issuance of additional shares, thus aiding in the reduction of the company's $5.1 billion debt burden.

‍

Within the framework of the endorsed class action settlement, AMC will allocate stock valued at approximately $129 million to holders of common stock as a means to resolve potential legal claims arising from the stock conversion plan.

‍

Importantly, the approved class settlement does not afford shareholders the option to abstain, effectively binding them to its terms.

‍

The initial settlement encountered substantial opposition, marked by the submission of over 2,800 objections from shareholders — a level of engagement characterized by Judge Zurn as "unprecedented." A significant portion of these objectors sought the liberty to opt out of the settlement and pursue independent legal action, contending that AMC's dire financial forecasts were tantamount to "fear tactics."

‍

Judge Zurn ruled against the feasibility of an opt-out mechanism, asserting that such an approach would detrimentally affect both the company and its shareholder base.

‍