Meme stock volatility may be back, at least for one of its poster children–
AMC Entertainment Holdings
The stock (ticker:
AMC
) surged 59% ahead of the open Monday after a judge blocked AMC’s plan to convert its so-called APE shares into common stock.
The volatility probably isn’t over yet. AMC has filed a revised stock conversion proposal in a bid to address the court’s concerns. CEO Adam Aron said if the court is satisfied he hopes to go ahead with the plan “as soon as possible.”
If that happens, expect the gains since the ruling to be quickly reversed.
The ruling, by Delaware Vice Chancellor Morgan Zurn Friday, had a big impact on the stocks in a busy weekend for the movie theater group that screened the debut of the Barbie and Oppenheimer films. AMC stock (ticker: AMC) was up 59% in the Monday premarket to $7.01, while APE (APE) shares, or AMC Preferred Equity, fell 1.7% to $1.77. AMC initially surged 67% in after-hours trading Friday.
For AMC, it’s a question of raising money and reducing its debt pile, which mounted during the pandemic when movie theaters were closed. It’s even more urgent given that the current writers and actors strikes cast doubt over movie releases next year and beyond.
The conversion would have allowed AMC to raise more capital by selling stock. Aron told investors that raising fresh equity in the near term “is critical” to the company and that AMC was working to address the court’s concerns.
“AMC must be in a position to raise equity capital. I repeat, to protect AMC’s shareholder value over the long term we MUST be able to raise equity capital. That is especially the case now with the added uncertainty caused by the writers and actors strikes, which could delay the release of movies currently scheduled for 2024 and 2025,” Aron wrote.
AMC reached a settlement with a group of shareholders, who argued the stock conversion diluted existing common stockholders without any compensation in return. The terms of the settlement meant common stockholders would receive shares valued at more than $100 million, lawyers for the plaintiffs said.
But Judge Zurn said she couldn’t approve the settlement because the deal came at the expense of APE unit holders.
“Awarding more shares to common stockholders necessarily comes at the expense of preferred units; the settlement consideration harms preferred unit holders,” she wrote, according to The Wall Street Journal.
Write to Callum Keown at [email protected]
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