AMC Entertainment Holdings Inc

Introduction:

The ongoing confrontation between retail investors and AMC Entertainment Holdings over a stock conversion plan is set to culminate in a crucial two-day court hearing in Delaware. This unique legal proceeding may determine the survival of the cinema chain. The Court of Chancery will preside over the hearing and consider approving a class action settlement, which is typically a routine matter. The proposed settlement aims to provide AMC common stockholders with approximately $129 million worth of shares to resolve allegations of a rigged shareholder vote against them. However, AMC's status as a "meme" stock, propelled by the social media-driven trading frenzy of 2021, adds an unprecedented dimension to this legal battle.

Background:

In February, AMC was sued for purportedly manipulating a shareholder vote that would enable the conversion of preferred stock to common stock, subsequently issuing hundreds of millions of new shares. Notably, the preferred shares had been issued by CEO Adam Aaron without obtaining voter approval from over four million retail investors. Moreover, Aaron sold 232 million APE preferred shares to Antara at a mere 0.66 cents per unit, when they could have been sold for a considerably higher price when the APE shares were distributed. The conversion would lead to a dilution of common stockholders' ownership but would assist AMC in reducing its $5.1 billion debt burden.

Stakes and Implications:

AMC's survival is contingent on resolving the ongoing litigation before executing its capital-raising plans. The court received an extraordinary number of objections—over 2,800—to the class action settlement. Numerous objectors sought permission to opt out of the settlement and pursue individual lawsuits, dismissing AMC's dire financial forecasts as "fear tactics." Retail investors harbor strong suspicions that the special master appointed to investigate the alleged criminal activity did not conduct a fair and comprehensive analysis before presenting the findings to Judge Zurn.

AMC's global operations encompass over 900 theaters, with its headquarters based in Leawood, Kansas. Despite AMC surpassing revenue estimates in the first quarter and expressing optimism for a continued upswing in box office sales through 2024, the company has been burning cash at an unsustainable rate. An inability to raise capital might force AMC into bankruptcy. This predicament necessitates the resolution of the litigation before the company can proceed with its plans.

Arguments and Perspectives:

AMC's spokesperson and the attorneys representing the lead plaintiffs in the lawsuit have yet to respond to requests for comments. Initially, the investors—a Pennsylvania pension fund and an individual shareholder—sought to prevent preferred stockholders from participating in the vote, which they believed had been structured in favor of the preferred stockholders. However, they contend in court documents that while AMC won the vote through "heavy-handed" tactics and "financial trickery," the proposed settlement compensates common stockholders without jeopardizing the company's future. They urge the judge to reject the objections raised by a "tiny minority" of AMC's 3.8 million stockholders.

Conclusion:

It will be quite interesting to see what outcome will take place in the next coming months. Whether the Judge issues the green light for AMC to merge the share back together and perform a reverse split or she denies the aformentioned, all eyes are on what's to come. The forthcoming court hearing holds immense significance for AMC Entertainment Holdings and its future prospects. The battle between retail investors and the cinema chain over the stock conversion plan has reached a critical juncture, with the court considering the approval of a class action settlement. The outcome of this hearing will not only determine the resolution of the allegations against AMC but also impact the company's ability to raise vital capital. As AMC continues to navigate this high-stakes legal confrontation, the resolution of the litigation will profoundly shape the path ahead for this iconic cinema chain.

Citation: "In re: AMC Entertainment Holdings Inc. Stockholder Litigation, No. 2023-0215, in the Delaware Court of Chancery."