AMC Entertainment (NYSE:AMC) stock plunged more than -30% after hours on Friday after a judge approved the company’s long-awaited settlement to convert APE shares into common stock.
Shares of the equity (APE) have soared more than +30% prior to the conversion.
“For the forgoing reasons, the Proposed Settlement is approved, Plaintiffs’
counsel are awarded a 12% fee award, and Plaintiffs are awarded $5,000 incentive awards out of their counsel’s fee award,” the filing concluded.
The ruling by Delaware Chancery Court Judge Morgan Zurn caps a protracted and bitter legal fight over AMC’s preferred equity units, or APEs, which pitted the company’s top executives against part of that retail investor base.
Last month Zurn surprised the market by rejecting an earlier version of the settlement, sending the value of AMC’s regular shares soaring and the APEs plunging.
She found that the original deal waived too many potential claims against the company, says Bloomberg.
“AMC must be in a position to raise equity capital. I repeat, to protect AMC’s shareholder value over the long term, we MUST be able to raise equity capital.
That is especially the case now with the added uncertainty caused by the writers and actors strikes, which could delay the release of movies currently scheduled for 2024 and 2025.
If we are unable to raise equity capital, the risk materially increases of AMC conceivably running out of cash in 2024 or 2025, or of AMC being unable to satisfactorily refinance and stretch out the maturity of some of our debt (which is required of us beginning as early as 2024.)
The risk of financial collapse is not whimsical. Cineworld/Regal, the second largest movie theatre chain in the world, fell into bankruptcy and their equity holders were essentially wiped out. Bed, Bath and Beyond which was viewed as the third most watched meme stock, also fell into bankruptcy and their equity holders also were essentially wiped out.
Fortunately, at AMC, we have been much smarter, much more agile and much more skillful. We have risen to every Covid challenge heretofore, and I have every confidence in our continued ability to successfully navigate through these complicated times,” Adam Aron said in a letter last month.
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AMC CEO on Eliminating Short Thesis
The best way to eliminate the Wall Street short thesis according Adam Aron is by successfully growing the company’s fundamentals.
Which makes absolute sense, though if you’re in AMC for a short-term flip it might not be very practical.
AMC Entertainment today is a company you want to invest in long-term, especially if you’re an absolute movie lover and have grown to be part of the company’s mission, survive first and thrive later.
A short squeeze is still very probable, although in terms of buying power from retail, as seen during the ‘meme stock’ frenzy of 2021, may slowly wear down as a reverse stock split will make it more expensive for new buyers to bulk up on the stock.
After all, short squeezes require big volume to trigger the process.
“AMC Entertainment must put ourselves in a position to be able to raise equity capital.
That is what will make it more likely that first we survive and then that we thrive. Indeed, over the last several years, there has been an enormous short share position in AMC stock.
In my view, the wisest way to defeat that short thesis is to take bankruptcy risk off the table, to the extent possible.
And we do that by AMC being able to raise equity if, as and when needed, said CEO Adam Aron.
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