(Bloomberg) — AMC Entertainment Holdings Inc. has revised a stock conversion proposal after a surprise court ruling quashed an earlier version of the plan and sent the cinema chain’s shares skyrocketing.
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The company and the investors leading the lawsuit filed a new version of the nine-figure settlement in Chancery Court in Delaware over the weekend to resolve issues identified by Judge Morgan Zurn, who concluded last Friday that the original deal waived too many claims against the company, according to people familiar with the filing. The file will not be publicly available until Monday, the people said.
The ruling stunned some investors and analysts, who expected Zurn to agree to the class action lawsuit. AMC common shares rose about 100% at times in after-hours trading, while AMC Preferred Equity Units (APEs) fell as much as 63%. The exact value of the settlement, which is over $100 million, has fluctuated depending on the company’s share price.
Settlement advocates want Zurn to weigh the new version of the deal without soliciting additional comments from AMC shareholders, the people said. More than 2,800 investors in the so-called “meme stock” wrote to Zurn before their verdict, rejecting the deal.
AMC Chief Executive Officer Adam Aron announced the revised agreement in an open letter to investors on Sunday, stressing the “critical” importance of approving the deal and converting the APEs so the company can raise new equity. “The risk of financial collapse is not bizarre,” Aron wrote in the letter posted on Twitter. “This is especially the case now that the writers’ and actors’ strikes bring added uncertainty.”
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The judge’s decision presented another hurdle to AMC’s recapitalization efforts, prompted by a slump in the film business related to the Covid-19 pandemic. Investors had sought an accelerated conversion that would allow for a one-for-one exchange of their APE shares into Class A common shares.
Opponents of the deal accused the theater chain of hatching an unsavory plan to take out its base of passionate retail investors, many of whom were participants in the market rally that saved AMC from pandemic-era bankruptcy. The settlement allows for the APE conversion while issuing additional shares to mitigate common stockholder dilution.
But Zurn rejected the deal over provisions that would waive common shareholders’ claims — even those involving preferred stock they could hold as a hedge. The new version of the deal includes tighter sharing, which supporters of the settlement hope will ease Zurn’s concerns.
“We believe the significant financial benefit we have gained through our clients’ litigation efforts clearly warrants compromising the common shareholders’ claims,” said Mark Lebovitch, an investor attorney supporting the settlement, in an email Sunday. “Restricting publication only reinforces that reality.”
AMC issued the APEs, including a 30 percent block to hedge fund Antara Capital LP, last year and has been trying to convert them ever since. Each unit represents one-hundredth of a preferred share and is theoretically worth 100 Class A shares, so they should be equivalent to common shares. However, they tended to trade at a deep discount due to the uncertainty surrounding the transition.
More than 70% of common shareholders who voted on the original APE conversion plan in March – before the settlement agreement went through – supported the move. APE holders also backed the proposal with a majority of 9 to 1.
But thousands of other individual investors opposed the conversion, arguing it would dilute their shares. Zurn stressed Friday that her ruling does not address allegations of market manipulation — which have included allegations of “synthetic stocks, Wall Street corruption, dark pool trading, insider trading and RICO violations” — made by retail holdouts.
The case is AMC Entertainment Holdings Shareholder Litigation, 2023-2015, Delaware Chancery Court (Wilmington).
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