AMC Theatres Shares Soar After Judge Blocks APE-to-Stock Conversion Plan

Etan Vlessing
·3 min read
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Shares in AMC Theatres soared by just over 60 percent late Friday — and at one point by 100 percent — after a Delaware Court judge blocked parent AMC Entertainment Holdings from proceeding with a plan to convert AMC Preferred Equity Units, or so-called APEs, into the company’s common shares.

Vice Chancellor Morgan T. Zurn of the Court of Chancery in Delaware rejected an earlier settlement that would have paved the way for AMC to continue to sell stock to reduce its high debt load. “The proposed settlement is not approved,” Judge Zurn concluded in her 68-page decision.

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On the weekend, AMC revised its stock-conversion proposal to potentially remove any objection from the Delaware court to the earlier version of stock conversion plan to raise fresh capital. And AMC Theatres CEO Adam Aron on his Twitter account reiterated the APEs-to-Stock conversion plan was essential to the company’s survival.

“Accordingly, given the absolute imperative to be able to raise equity capital going forward, we take seriously the court’s Friday ruling. In response, yesterday we along with the plaintiffs filed with the Delaware Court, a modification of the legal release surrounding the settlement of the Delaware litigation in an effort to address the court’s voiced concern. If the court agrees, it would be our hope to implement as soon as possible the plan approved in the AMC stockholders election in March,” Aron argued in an open letter to investors distributed via his social media account.

In the July 21 court ruling and with the aid of a report on the lawsuit from a Special Master, Corinne Elise Amato, the judge sided with plaintiffs that argued before the court the AMC Theatres board “breached their fiduciary duties by issuing and ‘weaponizing’ the preferred units, thereby interfering with the common stockholders’ voting rights. Second, they contended AMC was statutorily required to provide the common stockholders with a class vote on the creation of the preferred units, and failed to do so,” the judgement states.

In late Dec. 2022, AMC announced it raised $110 million to pay down debt by selling APE units to Antara Capital, LP to reduce the company’s debt load by around $100 million. Converting APEs into AMC common shares was opposed by retail investor critics for diluting the company’s stock, which effectively brought down the overall share price.

In early 2021, AMC became a popular stock among retail investors after the company appeared close to bankruptcy amid the pandemic fallout at movie theater chains. The stock surge at the time helped the company strengthen its financial position, as executives seized the opportunity to sell shares and repurchase debt.

But with stock in AMC having come back down to earth in value, the exhibition giant has been hard-pressed to keep raising fresh cash to run its business. The Delaware Court judge has blocked that wider conversion of APE units into AMC common shares, at least for now.

Judge Zurn in her decision paid tribute to retail investors who have opposed the APEs-to-stock conversion.

“AMC’s stockholder base is extraordinary. It includes a great number of human owners who care passionately about their stock ownership and the company. Many of them are connected to each other online. When notice went out to AMC stockholders, the reaction was unprecedented. The court received more than 3,500 communications from approximately 2,850 purported stockholders,” the judge wrote in his decision.

AMC will now have to go back to the drawing board if it wants to converge the APE units and common shares to stop investors buying the lower-cost APE shares and shorting the higher-cost AMC common shares as part of an arbitrage trade.

Common stock in AMC Theatres late evening on Friday was up by $2.71, or 61.5 percent, to $7.12, after closing at $4.40 at the end of trading earlier in the day.

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