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CEO Adam Aron has expounded on Twitter and most recently on AMC Entertainment’s latest earnings call about the risk of a cash crunch and even bankruptcy if it wasn’t able to secure financing in a still uncertain box office climate.
Today he can breathe easier as a Delaware Chancery Court Judge approved a revised shareholder settlement that paves the way for that to happen.
Chancellor Morgan Zurn, in her second opinion, approved the agreement she had rejected on July 21 for being “unsound.”
The problem speaks to the fact that AMC has an unusual investor base of millions of individual shareholders who were reluctant to dilute their holdings by allowing the company raise equity capital, with its regular shares. So AMC created new APE units (AMC Preferred Equity) as a workaround, figuring it could sell those, but it didn’t work. The APEs, which were traded separately, plunged in value. Amid the mess, the company proposed eliminating the APEs in a stock conversion, along with a reverse stock split and the authorization to raise equity. A majority of shareholders approved that at a special meeting in March.
But not all, a few of them sued AMC in Delaware Chancery Court seeking class action status. But then they reached a settlement with AMC, which had to approved by the same judge. Instead it was rejected. Everyone went back to the drawing board, revising the settlement with legal filings flying.
Aron warned earlier this week that retail shareholders “are underestimating the potential for cash burn in seasonally weaker winter months, especially given the uncertainties of the actors’ and writers’ strikes, since no one knows when they will end.”
“We continue to seek the flexibility to raise fresh capital on the best possible terms…to avoid the pitfalls that sank others in our industry.” It’s a mixed bag since retail shareholders probably saved the company from Chapter 11 during Covid by turning it into a meme stock and inflated the price of the shares, which the company sold for the cash it needed to stay afloat.
AMC shares plunged 26% to $3.87 after hours on the settlement. APE units went the other direction, up $27% at $2.25. If all goes as planned, the APEs will be converted to common shares and disappear. A one-for-ten reverse stock split would boost the share price.
The settlement included additional shares of common stock for holders to offset dilution. It also narrowed the release from the initial settlement, which waived all further claims.