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A court filing on Monday showed that AMC has agreed to settle a lawsuit relating to converting its preferred shares into common stock, which fell over 21% at Tuesday’s market open.
Shares of AMC Entertainment plunged more than 21% in premarket trading Tuesday after the cinema chain agreed to settlement terms related to shareholder litigation around the conversion of its AMC Preferred Equity (APE) into common stock. APE shares surged more than 11% on the reports.
The settlement, disclosed in a filing on Monday, would clear the way for AMC’s proposal to convert preferred APE shares into regular stock, along with a 10-to-1 reverse stock split and the ability to offload more shares. AMC shareholders supported the proposal last month, but the plan was put on hold after some shareholders filed a lawsuit against the company in Delaware Chancery Court to block the move.
As part of the settlement, the cinema theater chain will pay common shareholders one share for every 7.5 shares they hold following the reverse stock split.
AMC’s APE shares were issued in 2022 as a workaround to help the company eliminate debt after it faced backlash on proposals to create more shares. The name of the new shares, APE, came as an homage to retail investors known as “apes,” who played a key role in rescuing the company from bankruptcy during the coronavirus pandemic.
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Eric Wold, an analyst at B. Riley Securities, said the APE-conversion settlement could help AMC secure significant equity funding of as much as $16 billion. According to Wold, the settlement smooths the path for a “potentially massive” fundraise.
“Should the conversion of APE units to AMC common shares be permitted to proceed — along with the increase in authorized common shares and 1-for-10 reverse stock split — we continue to see a positive path for the company to raise significant amounts of capital.”– Eric Wold, an analyst at B. Riley Securities said.
AMC raised $110 million in equity capital in December from selling its APE shares to private investment firm Antara Capital, one of its biggest debt holders. AMC common shares traded at $3.96 at the time of the writing, while APE shares stood at $1.60.
Do you think AMC made the right move by agreeing to settle the lawsuit? Let us know in the comments below.