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AMC’s shares experienced a remarkable surge of up to 100% after a Delaware judge rejected a $129 million settlement between the cinema chain and its common stockholders. This settlement would have allowed AMC to sell more shares and improve its financial situation.
Judge Morgan Zurn of the Delaware Chancery Court deemed the settlement unfair because it would have prevented any future legal claims from preferred shareholders against the company, without obtaining their consent.
During the COVID-19 pandemic, AMC suffered significant losses due to the closure of cinemas. To increase liquidity, the company’s CEO took advantage of AMC’s status as a social media “meme stock” and aggressively sold stock. However, to sell more stock, the company needed approval from stockholders, who were concerned about dilution and did not provide their cooperation.
In 2022, AMC introduced convertible preferred stock called APEs as a means to raise cash. The company hoped to obtain shareholder approval to convert APEs into common shares, simplifying the capital structure and reducing the discount at which APEs traded in the market.
As AMC faced significant debts, it sold APEs to a hedge fund named Antara Capital to gain shareholder votes for selling more equity. The transaction included a provision that required the hedge fund to vote its preferred stock for authorizing additional shares. However, some shareholders went to court to block this move, arguing that it violated the rights of existing common shareholders who had previously rejected attempts to authorize more common shares.
A settlement was eventually negotiated, offering common stockholders a stock grant valued at $129 million in exchange for dropping their objections to the preferred stock transaction. However, this settlement required court approval, which ultimately surprised many observers when it was rejected. The court-appointed “special master” had previously issued a report in favor of the settlement after studying shareholder objections.
The opinion highlighted the unprecedented reaction of nearly 2,000 AMC shareholders who contacted the court during the litigation. This reaction emphasized the intense passion of the company’s retail investor base.
Judge Zurn acknowledged the uniqueness of AMC’s stockholder base, including numerous human owners who deeply care about their stock ownership and the company itself. Many of these owners are connected online and have raised various issues such as synthetic shares, Wall Street corruption, dark pool trading, insider trading, RICO violations, and a request for a share count.
AMC has not yet commented on the court ruling. After the decision, the company’s shares initially surged up to 100% in after-hours trading, but later saw those gains reduced to over 60% while APEs fell by approximately 15%.
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