A final decision in the latest AMC Entertainment (NYSE:AMC) lawsuit is coming very soon; however, the court will not rule on the terms of the settlement at the upcoming settlement hearing.
The Delaware Chancery Court is expected to provide new updates on June 29-30 regarding the lawsuit that seeks to prevent AMC Entertainment from converting its AMC Preferred Equity (NYSE:APE) into common stock, as well as a 1-for-10 reverse stock split.
In February, Allegheny County Employees’ Retirement System filed a lawsuit against AMC Entertainment claiming that the company and several of its directors violated state law to “eviscerate” the voting power of common stockholders, who had not supported issuing new shares.
The Allegheny County Employees’ Retirement System pursued a class-action complaint in Delaware’s Court of Chancery against AMC and its board members, including CEO Adam Aron, who received a temporary restraining order against the planned March 14 conversion vote.
Special Master Corinne Elise Amato has recommended that the court deny the objections to the proposed settlement.
“I recommend that the Court DENY the Objections to the Settlement as set forth herein,” Amato concluded in her 150-page report.
TheStreet says the final word of statement is expected on the two-day settlement hearing on June 29-30, but a court note by Vice Chancellor Zurn says the court will not rule the terms of settlement at the hearing.
Analyst Eric Wold says the conversion of APE’s into common shares will greatly beneift the company, helping it raise approximately $16 billion in equity.
However, the conversion comes with massive dilution which adds pressure towards downward trading.
And as we’ve seen in plain sight with Mullen Automotive, overleveraged hedge funds can easily bring the price back down, except shareholders are now left with significantly less shares.
Adam Aron Speaks on AMC’s Reverse Stock Split
In April, AMC CEO Adam Aron made the following statement regarding AMC’s reverse stock split:
“Some misunderstand the 1-for-10 reverse stock split, approved by 87% of March 14 votes, saying we are “stealing 90%” of your shares. You forget that the share price rises 10-fold at that time. EXACTLY the same as trading ten $1 bills for one $10 bill. Either way, you have $10.”
Some investors are questioning why the reverse stock split in the first place if ‘nothing’ truly changes.
“In your comments, some fear that after a RS, short pressure could cause price to go back down. But you neglect that it is EVERY bit as easy to short a stock priced at $3.00 as it is on a stock priced at $30. A RS itself has NOTHING to do with any subsequent prices afterwards,” said the CEO on Twitter.
While the CEO is right that the value (on paper) won’t change, market conditions today have been incredibly biased towards the downside and have been ever since AMC almost filed for bankruptcy in 2021 — we’ve seen AMC’s share price plummet from insiders selling, as well as institutions heavily shorting the stock.
On the other hand, AMC’s share price will now have to rise 10 times more from where it trades at the time of the reverse stock split in order for shareholders to break even or become profitable again.
An AMC reverse stock split is going to help the company tremendously!
The company will be able to raise a lot of capital very quickly and use it to pay down its debt or towards other innovative initiatives.
However, the result for individual investors may not be what others are portraying it to be.
Market News Published Daily 📰
Join the newsletter ⬅️ to receive daily stock market news, business news and updates straight to your inbox; more than 10,000 readers have joined!
THANK YOU to all of our blog sponsors, this year we’ve been able to increase our email sends and signup slots as well as introduce push notifications.
Franknez.com is the media site that keeps retail investors informed.
- Gain access to EXCLUSIVE FrankNez articles you won’t find here.
- Become part of a private and safe Discord community, just for retail investors.
- Get drawn at the end of the year for holiday giveaways.
Recommended For You ✨
- SNAP Benefits Will Now Increase For The Year 2024
- A Massive US Bank is Now Closing Credit Cards
- A US Company Now Declares An Unexpected Bankruptcy
- The US Treasury Direct is Now Freezing Customer Accounts
- A US Bank is Now Denying Customers Access to Money
- Florida Now Has Massive Departures As Hundreds of Thousands Leave