AMC Entertainment Holdings took a massive stock jump just after the close of Friday’s bell, peaking at $8.13 from an end-of-day price of $4.40. But it’s not thanks to strong earnings from “Barbie” and “Oppenheimer.”
The rally came amid news that a Delaware judge had rejected a $129 million settlement offer between the movie theater chain and its common stockholders that would have paved the way for it to sell more shares to stay afloat.
The judge in the Deleware Chancery Court case, Morgan Zurn, ruled that the deal was unfair since it would have blocked future legal claims against the company from preferred shareholders.
“The proposed settlement is not approved,” Judge Zurn concluded in his 68-page decision.
The settlement would have paid off common stockholders in exchange for allowing holders of its preferred shares to convert their holdings into common stock. AMC had not sought preferred shareholders’ consent for the settlement.
AMC suffered massive losses due to forced closures amid the COVID pandemic and weathered through over two years of comparatively fewer major theatrical releases as studios held back their tentpoles or emphasized streaming gains over theatrical revenue.
The company’s CEO, Adam Aron, took advantage of AMC’s status as a social media “meme stock” in early 2021 to sell more stock and thus increase liquidity. In August 2022, AMC created a special dividend called “APE” units and then set plans to sell 425 million of its “preferred equity units.”
By December 2022, AMC said it had raised $110 million to pay down debt by selling APE units to pay down debt by selling APE units to Antara Capital, LP to reduce the company’s debt load by around $100 million.
However, converting APEs into AMC common shares was opposed by retail investor critics for diluting the company stock, which brought down the overall share price.
The Delaware Court judge has now blocked a wider conversion of APE units into AMC common shares.
“AMC’s stockholder base is extraordinary. It includes a great number of human owners who care passionately about their stock ownership and the company. Many of them are connected to each other online,” the judge noted in his ruling. “When notice went out to AMC stockholders, the reaction was unprecedented. The court received more than 3,500 communications from approximately 2,850 purported stockholders.”
The decision to reject the settlement came as a surprise to observers, as a “special master” appointed by the court to study shareholder objections to the settlement issued a report this past June in favor of the deal.
As of 5 p.m. PT, the stock was listed at $7.17, which still makes for a 63% boost.