Shares of AMC Entertainment (NYSE: AMC) surged in late trading Friday after a Delaware judge ruled against the company’s proposed plan to convert its preferred shares, or APE units, into common stock.
This decision is a victory for retail investors, who saved the company from bankruptcy during the pandemic’s peak. Bloomberg Law reports that the conversion would have diluted the stake of these retail investors.
Vice Chancellor Morgan T. Zurn rejected a settlement proposal in the nine-figure range that would have allowed the conversion to proceed while offering additional stock to offset the dilution impact on regular shareholders.
The unexpected ruling sent shockwaves to investors and analysts who expected a different outcome, considering that the shareholders had voted in favor of the conversion in March.
Key Background
The background of the issue traces back to the issuance of Ape units last year, with a 30% block allocated to Antara Capital LP. Since then, AMC has been attempting to carry out the conversion.
Each unit is theoretically equivalent to 1/100th of a preferred share, which is supposed to be equal to 100 Class A shares, as per the Bloomberg report. However, uncertainties surrounding the conversion have led to these units typically trading at a substantial discount.
In the original vote on the Ape conversion plan conducted in March, approximately 70% of common stockholders supported the proposal, and Ape unit holders overwhelmingly favored it with a 9-to-1 majority. However, retail investors resisted the move due to concerns over potential share dilution, and some chose not to vote on the company proposals.
This ruling now poses a challenge for AMC, as it seeks to convert the Ape units and issue additional shares while grappling with the complexities of loan financing amid fluctuating interest rates.
The decision marks a rare win for small investors in a market traditionally dominated by institutional players. Nevertheless, with the case still open and AMC’s determination to recapitalize, the final act of this dramatic saga remains uncertain.
Price Action: Shares of AMC traded 62.95% higher to $7.17 in after-hours trading Friday, while APE units shed 20% of their value to $1.43.
Jennifer Tacker is a staff writer at ABBO News. She holds a B.A. from the University of Waterloo and a B.Ed from Western University. Jennifer has been active in the stock market and crypto sector for a decade. She specializes in technical analysis and trading strategies.
