Judge Denies AMC’s Proposed Settlement in APE Conversion Lawsuit
AMC’s plan to convert AMC Preferred Equity (APE) units into common stock and raise fresh capital hit another obstacle after Delaware’s Court of Chancery denied the proposed settlement that would have allowed the company to proceed with the plan. The stock conversion would have enabled the cinema chain to raise substantial funds to reduce its debt load.
The Proposed Settlement Offered “No Good Cause,” Says Judge
Delaware’s Court of Chancery ruled against a proposed settlement between AMC Entertainment and shareholders that allowed the company to convert its preferred APE shares into common stock. According to the court filing, the two parties “offer no good cause to lift the status quo order” – a necessary move to proceed with the conversion.
The court decision comes just days after AMC agreed to settlement terms relating to a shareholder lawsuit against the company over converting APE shares to common stock. The settlement would have enabled a 10-to-1 stock split and allowed the company to sell more shares.
AMC shareholders proposed the stock conversion and the reverse stock split in March, but the plan was halted after another group of shareholders sued the cinema theater chain Delaware Chancery Court to block the decision. In the lawsuit, the shareholders accused AMC and its directors of attempting to “eviscerate” the voting power of common shareholders who had not backed the stock conversion scheme.
AMC’s common shares were up 10% in premarket trading Thursday, while the preferred APE stock fell 12% ahead of the market open.
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What are APE Shares, and Why Were They Issued?
In 2022, AMC Entertainment announced the issuance of AMC Preferred Equity units, known as APEs, to secure fresh capital to pay off its debt load of $5.4 billion and fund its long-term prospects. Each AMC shareholder received one APE share for each common AMC share they owned.
But the creation of APE shares was not warmly welcomed by investors, who were concerned about further stock dilution. As a result, the share price of APE units fell more than 75% since their public debut. The preferred shares are currently worth $1.51 apiece, trading at a significant discount compared to the common AMC share price of $4.58.
Still, the company raised some capital from selling APE shares recently. Earlier this week, analysts said the proposed stock conversion would have cleared the way for the company to secure significant equity funding of as much as $16 billion.
Do you think AMC will try to appeal the court decision? Let us know in the comments below.