Shares of movie-theater chain AMC Entertainment Holdings Inc.
AMC,
tumbled 27% after hours on Friday after a Delaware court approved a revised but still-controversial stock-conversion plan intended to shore up the company’s finances.
The move by Delaware Chancery Court Judge Morgan Zurn comes after that court last month rejected an earlier version of the settlement cleared on Friday.
AMC has wanted to turn its AMC preferred equity units — or APEs — into common stock, as it seeks ways to sell more shares in order to raise money and stave off any further financial distress, but many retail shareholders objected, amid concerns about dilution.
The settlement agreement approved by the judge on Friday between AMC and its shareholders would only slightly prevent the dilution of common shares, increasing the proportion of the company held by existing common shareholders by about 3% in aggregate, Zurn wrote in the opinion. But she argued the settlement was still beneficial to both parties, as it “gives the class more equity in a struggling company, and gives the company a way to raise needed revenue.”
AMC earlier told investors it is burning cash at an unsustainable rate and that the settlement would clear the way for the company to sell more shares and pay down some of its $5.1 billion in debt.
Under the approved class action settlement, AMC will provide stock worth an estimated $129 million to holders of its common stock to settle potential legal claims related to a stock conversion plan.
The approved class settlement did not allow shareholders to opt out and binds them to the agreement.
More than 2,800 objections to the initial settlement were filed by shareholders, a level of interest Zurn called “unprecedented.” Many of those objectors sought permission to opt out of the settlement and sue on their own behalf, dismissing AMC’s dire financial predictions as “fear tactics.”
Zurn said an opt-out was not feasible and would be detrimental to the company and its shareholders.
The case is In re: AMC Entertainment Holdings Inc. Stockholder Litigation, No. 2023-0215, in the Delaware Court of Chancery.
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