In a surprising turn of events, a Delaware judge has rejected a settlement that would have allowed AMC Entertainment to proceed with its plans to convert its AMC Preferred Equity units (APEs) to common stock. The settlement, which was reached between the company and a group of shareholders, required the approval of the judge in the Delaware Chancery Court Case. However, Judge Morgan Zurn stated in her ruling that the settlement could not be approved as submitted.
The case initially began when a group of AMC investors challenged the company’s plans to convert preferred equity into common stock. AMC CEO Adam Aron had viewed the settlement as a positive step towards the company’s financial turnaround, but the judge’s ruling has now thrown a wrench into those plans.
The rejection of the settlement has raised concerns about AMC’s ability to raise cash in the future. If the company needs to raise funds quickly, it will have to sell AMC Preferred Equity units, which are worth significantly less than its common stock. Following the news of the ruling, the APEs fell 14% to $1.54, while AMC common shares surged 63% to $7.17.
One of the main issues raised by the judge was the potential inequity in the voting process. While a majority of shareholders approved the company’s plan to convert APEs into common shares at a special meeting, the judge noted that the interests of both AMC common stockholders and APE holders were not adequately addressed in the settlement.
The judge’s ruling also highlighted the need for a more thorough review of the settlement, citing the large number of AMC shareholders and the significant amount of communication received during the comment period. The court received over 3,500 communications from approximately 2,850 purported stockholders, with various issues raised, including concerns about synthetic shares, insider trading, and share count.
It remains unclear what the next steps will be for AMC. The company has stated that it is continuing to evaluate its options. The rejection of the settlement could potentially impact AMC’s ability to de-lever its balance sheet and maintain a viable financial position if the box office recovery falters.
Overall, the judge’s decision to reject the settlement has created uncertainty for AMC Entertainment and its shareholders. The company will now have to reassess its plans and find alternative ways to raise capital if needed. The ruling serves as a reminder of the importance of thorough and equitable settlements in shareholder disputes, and the potential impact they can have on a company’s financial future.