The AMC Entertainment Holdings Inc (NYSE: AMC) stock price plunged 24.3% after settling with shareholders who had sued it to block the measures passed by shareholders at a special meeting in March authorising the company to issue more shares and convert its existing preferred shares into common shares.
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In response to the litigants dropping the lawsuit, the settlement will see AMC issue 6.9 million shares, or 4.4% of the company’s outstanding common stock pro forma. The AMC stock price fell on the deal, but the preferred stock units or APEs rallied on the news, which will pave the way for their conversion into ordinary shares.
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The courts must still approve the binding settlement. A Chancery Court judge had set an April 7, 2023, hearing date to rule on a preliminary injunction regarding the measures before the latest announcement. It is unclear why AMC settled the matter, yet the plaintiffs' case seemed weak after most stockholders approved the proposed measures.
AMC Entertainment shareholders had approved an amendment to the company’s certificate of incorporation to increase its share authorisation of common stock to 550 million. They also supported the reverse stock split proposed by AMC’s management.
The movie theatre company wants to conduct a 10-for-1 reverse stock split, significantly boosting its share price. The decline in AMC’s share price reflects the discontent shareholders felt following the deal agreed to by the company.
AMC was rescued from bankruptcy when it became a meme stock from January to June 2021 when retail traders pushed its share price higher, allowing the company to issue new shares at high prices and raise $1.2 billion, saving it from financial distress.
However, AMC’s CEO Adam Aron warned investors in February 2023 that the company was not out of the woods yet, so it needed to raise more capital. The company’s shareholders approved the proposals to help AMC raise much-needed capital.
The deal with the disgruntled shareholders surprised many but could have been driven by a sense of urgency on the company’s part since it may desperately need to raise cash.
*This is not investment advice.
AMC Entertainment (AMC) stock price.
The AMC Entertainment (AMC) stock price fell 24.27% to trade at $3.87, from Monday’s closing price of $5.11.
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