AMC shares surge after court quashes ‘APE’ stock conversion deal

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Shares of AMC soared up to 100 percent after a Delaware judge overturned a $129 million settlement between the cinema chain and its common stockholders that would have paved the way for it to sell more shares to help it stay afloat.

Morgan Zern, a Delaware Chancery Court judge, ruled that the deal – which would pay common stockholders in exchange for allowing holders of its preferred shares to convert their holdings into common stock – was unfair, as it would block any future legal claims of the preferred shareholders against the company. The company had not sought the consent of the preferred shareholders for the arrangement.

AMC was hit hard by the closure of theaters due to shutdown orders during the coronavirus pandemic. The company’s chief executive seized on AMC’s status as a social media “meme stock” for aggressively selling the stock to increase liquidity.

However, since the company sold more stock than it needed stockholder approval to sell how many authorized shares, those shareholders, somewhat concerned about dilution, would not cooperate.

The company created convertible preferred stock, known as APE, due in 2022 as a way to raise cash, although it expected to eventually get shareholder approval to convert it to common shares to simplify its capital structure and reduce the discount at which APE trades in the market.

AMC, which is heavily in debt, sold APE to Antara Capital, a friendly hedge fund, late last year in an attempt to win shareholder votes to get permission to sell more equity.

The transaction included a provision that the hedge fund would vote its preferred stock to effect the authorization of more shares.

Some shareholders sought to block the move in court, claiming that the deal violated the rights of existing common shareholders, who had previously rejected efforts to authorize more common shares.

The plaintiffs eventually negotiated a settlement that would give common stockholders $129 million worth of stock grants in exchange for dropping their objection to the preferred stock transaction. The settlement required court approval.

The decision to reject the agreement was a surprise to many observers. A “special master” appointed by the court to study shareholder objections to the agreement issued a report in June in favor of the deal.

The opinion noted that approximately 2,000 AMC shareholders contacted the court during the course of the litigation, a response described as “unprecedented” and that underscores the company’s highly charged retail investor base.

Delaware Judge Zern took into account the unique circumstances of the case in his opinion.

“The shareholder base of AMC is exceptional. It consists of a large number of human owners who care passionately about their stock ownership and the company. Many of them are connected to each other online. , , Such issues raised by AMC stockholders include the principle of synthetic shares, Wall Street corruption, dark pool trading, insider trading and RICO violations, and requests for a share count.

AMC did not immediately comment on the court’s decision. Its shares soared up to 100 percent in after-hours trading after the decision, before paring that gain to nearly 75 percent, while APE declined nearly 20 percent.