AMC Entertainment has taken a big step forward on a few key fronts, announcing a settlement in a shareholder lawsuit that would allow it to issue stock, raise capital, convert its APE units and go ahead with a ten-for-one reverse stock split – basically a lifeline if it needs one.
Shareholders had approved the much-needed measures at a special meeting last month but not before a few of them sued the company in Delaware Chancery Court to block the move.
But the giant exhibitor said today in an SEC filing tht it had entered into a binding settlement that would see the suit dropped in exchange for about 6.9 million shares, or 4.4% of the company’s outstanding common stock pro forma.
The court must approve the settlement.
Shares of AMC fell and the price of the AMC Preferred Equity units rose on the news.
AMC shareholders voted in March specifically on two proposals: one calls for a increase in authorized common shares from 524 million to 550 million, the second for a ten-for-one reverse stock split. If both pass, holders can convert their APEs into common shares.
AMC, which flirted with bankruptcy during Covid, was rescued by its transition to meme stock status with retail investors and, more recently, by an improving box office. But the company’s debt is a big drag and CEO Adam Aron warned shareholders on the last earnings call in Feb. that it is not out of the woods. The company had tried and failed a year ago to get shareholder agreement on issuing new shares, which the company could then sell to raise cash, which was running low. (Issuing new stock dilutes the position of current holders.) Aron found a way around that last year by creating a completely new class of securities called AMC preferred equity units, or APEs for short. He sold some of those but not enough, or fast enough, to make a difference to AMC cash coffers before price of the APEs plummeted.
His plan is to decommission the APEs by converting them to common shares in conjunction with a reverse stock split. That boosts the price of the stock. In this case, every ten shares in hand will be converted to one share that’s worth, initially, ten times as much.
A Chancery Court judge had set an an April 7 hearing date to rule on a preliminary injunction on the measures. The plaintiffs case seemed weaker after an overwhelming majority of stockholders approved an amendment to the exhibitor’s certificate of incorporation to increase the share authorization of common stock to 550 million shares, and backed the reverse stock split. But you never know.