AMC Entertainment, the world’s largest movie theater chain, has secured approval for a revised shareholder settlement, successfully dodging a potential cash crunch. The approval comes as a relief for CEO Adam Aron, who had been vocal about the risk of bankruptcy if the company couldn’t secure financing in an uncertain box office climate.
The Delaware Chancery Court Judge, Chancellor Morgan Zurn, approved the revised settlement which she had previously rejected for being unsound. The issue at hand stemmed from AMC’s unique investor base, consisting of millions of individual shareholders who were hesitant to dilute their holdings. To work around this, AMC introduced new APE units, or AMC Preferred Equity, in an attempt to raise equity capital. However, the APE units dropped significantly in value, leading to complications.
In an effort to resolve the situation, AMC proposed eliminating the APE units through a stock conversion, along with a reverse stock split and authorization to raise equity. The majority of shareholders approved this proposal in a special meeting held in March. However, a few shareholders filed a lawsuit against AMC in the Delaware Chancery Court, seeking class action status. Eventually, a settlement was reached between the parties, but it was initially rejected by the same judge. This setback prompted a revision of the settlement with both parties filing legal documents.
Aron had previously cautioned that retail shareholders were underestimating the potential for cash burn in the seasonally weaker winter months, especially considering the uncertainties caused by potential strikes from actors and writers. AMC aims to secure fresh capital on favorable terms to avoid the challenges that have plagued others in the industry.
Following the news of the approved settlement, AMC shares plummeted by 26% to $3.87 after hours. Conversely, the APE units experienced a 27% increase, reaching $2.25. If all goes according to plan, the APE units will be converted to common shares and phased out. Additionally, a one-for-ten reverse stock split is expected to boost the share price.
This development provides a much-needed lifeline for AMC Entertainment, allowing it to navigate the turbulent waters of the box office industry. It demonstrates the company’s commitment to finding innovative solutions to financial challenges and ensures its survival in an unpredictable market. With the approval of the revised shareholder settlement, AMC can now focus on revitalizing its operations and attracting moviegoers back to theaters.
