AMC Entertainment settles shareholder lawsuit

AMC Entertainment has made major strides on a number of important fronts by announcing a settlement in a shareholder lawsuit that will allow the company to issue shares, raise capital, convert its APE units and ‘ a reverse stock split in the 10:1 ratio to continue – basically a lifeline when it needs one.

Shareholders approved the much-needed measure at a special meeting last month, but not before some of them took the company to Delaware courts to block the move.

But the giant issuer said in an SEC filing Monday that it had reached a binding settlement that would see the lawsuit dropped pro forma in exchange for about 6.9 million shares, or 4.4 % of the company’s outstanding ordinary shares.

The court must approve the settlement.

AMC shares fell and AMC Preferred Equity shares rose on the news.

Specifically, AMC shareholders voted on two proposals in March: one that called for an increase in the number of authorized common shares from 524 million to 550 million, and the second that called for a 10-for-1 reverse stock split. If both exist, holders can convert their APEs into ordinary shares.

AMC, which flirted with bankruptcy during Covid, was saved by its transition to meme stock status with retail investors and, more recently, by improving box office. But the company’s debt is a huge burden, and CEO Adam Aron warned shareholders that it was not out of the woods yet in his last earnings announcement in February. The company tried and failed a year ago to reach a shareholder agreement to issue new shares, which the company could then sell to raise cash it was short on. (Issuing new shares dilutes existing holders’ position.) Last year, Aron found a way around this by creating an entirely new class of securities called AMC Preferred Stock Units, or APEs for short. He sold some, but not enough or fast enough to make a difference in AMC’s box office before the price of APEs dropped.

His plan is to retire the APEs through conversion to common stock in conjunction with a reverse stock split. This drives up the share price. In this case, every 10 shares in the hand is converted into one share worth 10 times its initial value.

A Chancery Court judge set a hearing for April 7 to decide an order on the measures. Plaintiffs’ arguments appeared weaker after an overwhelming majority of shareholders approved an amendment to the Issuer’s Bylaws to increase the common stock authorization to 550 million shares and supported the reverse stock split. But you never know