Settlement with Judge Nixes AMC Entertainment shareholders

July 21, 2023 6:20 p.m.

In a twisted legal case, a Delaware judge today overturned a settlement that would have helped AMC Entertainment move forward with steps to raise funds and shore up its stock.

"Straight to the point, the settlement cannot be approved as submitted," Delaware Chancery Court Judge Morgan Zurn wrote in a 69-page opinion released today. His decision follows several days of hearings earlier this summer in a lawsuit originally brought by a group of AMC investors who challenged the company's plans to convert preferred stock into common stock. The exhibitor and shareholders later reached an agreement in the case, but it required the judge's approval.

In short: if AMC is going to raise money in a hurry, it will have to sell AMC Preferred Equity, or APE, which is worth far less than its common stock. APE fell 14% to $1.54 in late trading today. AMC common shares jumped 63% to $7.17 after what could, however, become a problematic move for the channel.

AMC avoided bankruptcy during and after Covid as retail investors enthusiastically crowded into the action. And the box office has made great progress, including this magnificent weekend. CEO Adam Aron told Deadline in April that he viewed today's decision as "the icing on the cake" of a turnaround. “I will be more confident after that, once we have the capacity to implement shareholder voting,” he added. “When you have the ability to raise capital if you need it, that's really important. Whether or not we need it depends on what… the box office is this year,” Aron told Deadline at the time.

Now there's an added risk that a cast strike will pressure the release schedule as early as the fourth quarter for big movies that need the traction of press tours by named actors. If this continues into the fall and beyond, the 2024 box office will feel it.

Zurn said the parties to the case "cited AMC's financial situation" as they "seeked to present their settlement for approval within a shortened timeframe".

Aron created EPAs as a workaround last summer after shareholders repeatedly balked at allowing AMC to issue new shares, which would have diluted their holdings. AMC didn't need their permission to issue APEs, so it was potentially a great idea. But the company waited a bit and the price of APEs, which are traded on the NYSE, began to decline, falling below one dollar. So this year, AMC said "whatever". She proposed eliminating the APEs by converting them into common stock, issuing new common stock and doing a ten-for-one reverse stock split to increase the value of the volatile common stock.