AMC’s CEO Talks About Possible Bankruptcy in the Future as Stock Rallies 34%
Adam Aron, the CEO of the movie theater chain AMC Entertainment Holdings, has published an open letter saying that the company needs to raise equity to keep operations running. He also revealed the movie theater chain had filed a revised petition for a stock conversion plan.
The announcement came after a Delaware Court ruled against a company settlement proposal that would have allowed it to issue more shares and convert preferred equity shares to common shares.
Judge Blocks AMC’s Proposed Stock Conversion Plan
On Friday, Delaware Vice Chancellor Morgan Zurn blocked AMC’s proposed settlement on its stock conversion plan. The judge argued that she could not approve the deal as it would settle potential claims by preferred shareholders not involved in the lawsuit.
The lawsuit, filed in February, accused AMC of rigging a shareholder vote to convert preferred stock to common stock and issue new shares to the disadvantage of common stockholders. The court ruling said shareholder votes were “certain to pass,” as AMC issued units representing fractional shares of preferred stock and voted with them.
“Those units have a mirrored voting feature under which any uninstructed units vote in proportion to the instructed units,” the ruling said. Vice Chancellor Zurn also noted that common stockholders had no right to settle potential claims by preferred stockholders.
Without the proposed settlement, common stockholders would own 34.28% of AMC, and preferred shareholders would own 65.72%. However, common stockholders would own 37.15% under the settlement, and preferred shareholders would own 62.85%.
Shareholders have submitted over 2,800 objections regarding the settlement, which Vice Chancellor Zurn called “unprecedented.” “AMC’s stockholder base is extraordinary,” she said, adding many “care passionately about their stock ownership and the company.”
Many objectors sought permission to sue on their behalf instead of accepting the settlement. AMC had warned investors about its dire financial situation, stating that bankruptcy could be imminent without the ability to raise capital.
The company intends to sell more shares to pay off its $5.1 billion debt, but this plan is on hold until the litigation is resolved. The judge’s decision now sends the dispute back to the parties involved, who may choose to revise the settlement and seek approval once again.
AMC shares went on an uptrend following the ruling. The movie theater chain’s stock jumped around 27% to $5.61 in the early Monday trading hours.
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AMC CEO Warns They Could Run Out of Cash By 2024
AMC CEO Adam Aron said the company needs to raise equity in a Monday open letter. He warned that the movie theater chain risks “running out of cash” in 2024 or 2025 if the firm fails to “raise equity capital.”
Aron mentioned rival Cineworld/Regal — a movie theater that declared bankruptcy — and retailer Bed Bath & Beyond, which became popular with retail traders before bankruptcy. “The risk of financial collapse is not whimsical,” he said.
The CEO added that the company has filed “a modification of the legal release surrounding the settlement of the Delaware litigation to address the Court’s voice concern.” He said if the court agrees, AMC could move forward with its shareholder plan from March.
In the letter, Aron said that since taking over the CEO role at AMC, he had been driven by not letting AMC fail and putting the company on a path to thrive. The CEO said he has been transparent with shareholders, and the company needs to raise capital, especially given the ongoing Hollywood work stoppage and strike.
“AMC must be in a position to raise equity,” he said. “We sincerely believe we are on the surest path to ensuring AMC’s survival by allowing us to raise equity and to do so at the highest possible price with the least amount of dilution.”
Nevertheless, AMC shares surged as much as 70% at one point in pre-market trading Monday. Currently, the company’s stock is up more than 33%, trading at $5.90 per share.
Do you think AMC should be able to raise equity capital even if it comes at the expense of shareholders? Let us know in the comments below.