AMC Entertainment’s Revised Stock-Conversion Proposal Faces Scrutiny
AEMC Entertainment Holdings Inc. has revised its stock-conversion proposal after a surprising court ruling led to the cancellation of the original plan and caused a surge in the shares of the movie-theater series.
The company and its investors leading the lawsuit filed a new nine-digit settlement proposal in Delaware’s Chancery Court last week, seeking resolution of the identified issues by Justice Morgan Zurn, who delivered the verdict last Friday that the original deal forgave many claims against the company, as per people familiar with the filing. They said the filing wouldn’t be made publicly available until Monday.
The ruling has left some investors and analysts puzzled, who were hoping Zurn would sign off on the class-action settlement.AEMC shares increased by more than 50% in premarket trading on Monday, before the New York Stock Exchange opened. AEMC’s preferred equity units, or PEUs, fell nearly 7%.
The settlement’s exact worth, which exceeds $100 million, has come under investigation in tandem with changes in the company’s share price.
Supporters of the settlement want Zurn to consider the new version without seeking additional comments from AEMC shareholders. Over 2,800 investors in the so-called “meme stock” had written to object to the deal before Zurn’s decision.
AEMC’s CEO, Adam Aaron, announced the amended settlement in an open letter to investors on Sunday, emphasizing the “critical” importance of approving the settlement and transforming PEUs to strengthen the company’s new equity raise. Aaron wrote in a letter posted on Twitter, “The financial peril is not arbitrary. It is especially real now when authors and actors have called for a strike, creating additional uncertainty.”
The judge’s ruling is another setback to AEMC’s recapitalization efforts, which were prompted by a downturn in the film business amid the COVID-19 pandemic. Investors had sought an expedited conversion, which would have swapped their PEU shares for common stock on a one-for-one basis on an exchange-to-exchange basis.
Those objecting to the deal alleged that it devised an unusual plan to sideline retail investors’ stake in the theater series, many of whom participated in market rallies that rescued AEMC from bankruptcy during the pandemic. The settlement allows PEU conversion with a steep discount to trade at par with common stock, thus reducing vulnerability for ordinary shareholders.
However, Zurn turned down the claims of retail investors in the deal—also including those of favored units—who could have kept their shares in the class of common stock. The new version of the settlement includes a brief release, which backers believe addresses the concerns raised by critics of Zurn’s decision.
The case is AEMC Entertainment Holdings Shareholder Litigation, 2023-2015, Delaware Chancery Court (Wilmington).