Judge denies AMC settlement on stock conversion, shares surge
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[July 22, 2023] By
Jody Godoy
(Reuters) -A judge on Friday blocked a proposed settlement on AMC
Entertainment Holdings' stock conversion plan that would allow the
company to issue more shares, sending its common shares soaring and
preferred shares down in after-hours trading.
Delaware Vice Chancellor Morgan Zurn said in the ruling that she cannot
approve the deal, which would provide AMC common stock holders with
shares worth an estimated $129 million, because it would also settle
potential claims by preferred shareholders who were not represented in
the lawsuit.
AMC shares were up 69% at $7.44 in trading after the bell. Its preferred
shares were down 20% at $1.43.
An attorney for the investors who filed the class action lawsuit and a
spokesperson for AMC did not immediately reply to requests for comment
on Friday.
The company was sued in February for allegedly rigging a shareholder
vote that would allow AMC to convert preferred stock to common stock and
issue hundreds of millions of new shares.
The investors who sued alleged AMC had enacted the plan to circumvent
the will of common stock holders who opposed the company diluting their
holdings.
Without the proposed settlement, common stockholders and preferred
shareholders would end up owning 34.28% and 65.72% of AMC, respectively.
Under the proposed settlement, common stockholders and preferred
shareholders would own 37.15% and 62.85%, respectively.
While the deal would compensate common stock holders for the dilution,
they had no right to settle potential claims by holders of preferred
stock, Zurn wrote on Friday.
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An AMC theatre is pictured amid the
coronavirus disease (COVID-19) pandemic in the Manhattan borough of
New York City, New York, U.S., January 27, 2021. REUTERS/Carlo
Allegri/File Photo
The settlement received more than 2,800 objections from
shareholders, a level of interest Zurn called "unprecedented."
"AMC's stockholder base is extraordinary," she said, adding many
"care passionately about their stock ownership and the company."
Many objectors sought permission to opt out of the settlement and
sue on their own behalf, dismissing AMC's dire financial predictions
as "fear tactics."
They did not raise the problem Zurn identified with releasing
preferred shareholder claims.
AMC has told investors it is burning cash at an unsustainable rate
and warned that an inability to raise capital could force the
company into bankruptcy. Selling more shares would enable it to pay
down some of its $5.1 billion in debt.
It cannot carry out its plan to do so until the litigation has been
resolved.
Zurn's decision sends the dispute back to the parties, who may
decide to amend the proposed settlement and try again for approval.
The case is In re: AMC Entertainment Holdings Inc. Stockholder
Litigation, No. 2023-0215, in the Delaware Court of Chancery.
(Reporting by Jody Godoy, Editing by Franklin Paul, Deepa Babington
and Chris Reese)
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