Shares of movie-theater chain AMC Entertainment Holdings Inc. tumbled 27% after hours on Friday after a Delaware court approved a revised but still-controversial stock-conversion plan intended to shore up the company’s finances.
Resistance to Stock Conversion Plan
AMC has been seeking to convert its preferred equity units, also known as APEs, into common stock as a means of raising funds and avoiding further financial distress. However, many retail shareholders have objected to the plan, expressing concerns about dilution.
Revised Settlement Agreement
A settlement agreement between AMC and its shareholders was approved by Delaware Chancery Court Judge Morgan Zurn on Friday. This new agreement aims to slightly prevent dilution of common shares, giving existing common shareholders an increase of approximately 3% in aggregate company ownership. In her opinion, Judge Zurn argued that this settlement would benefit both parties, providing the struggling company with a way to raise much-needed revenue while giving the class more equity.
AMC's Financial Challenges
AMC recently disclosed that it is burning cash at an unsustainable rate and highlighted that the approved settlement would pave the way for selling more shares and reducing its $5.1 billion debt burden.
Class Action Settlement Details
Under the approved class action settlement, AMC will offer stock worth an estimated $129 million to holders of common stock in order to settle potential legal claims related to the stock conversion plan. Shareholders are bound by this agreement and are not allowed to opt out.
Unprecedented Level of Objections
The initial settlement prompted over 2,800 objections from shareholders, which Judge Zurn described as "unprecedented." Some objectors sought permission to opt out of the settlement and pursue individual lawsuits, dismissing AMC's warnings about its dire financial situation as "fear tactics." However, Judge Zurn concluded that allowing opt-outs would be detrimental to the company and its shareholders.
The case is In re: AMC Entertainment Holdings Inc. Stockholder Litigation, No. 2023-0215, in the Delaware Court of Chancery.