Judge Rejects AMC Entertainment Shareholder Settlement

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Judge Rejects AMC Entertainment Shareholder Settlement

In a dramatic legal twist, a Delaware judge has struck down a settlement that would have been a lifeline for AMC Entertainment. “To cut to the chase, the settlement cannot be approved as submitted,” Judge Morgan Zurn of Delaware Chancery Court wrote in a 69-page opinion. This ruling comes after a group of AMC investors initially challenged the company’s plans to convert preferred equity into common stock. Although a settlement was reached between the exhibitor and shareholders, it required the judge’s approval.

Meanwhile, AMC faces the challenge of raising cash quickly. If they need to do so, they will have to sell AMC Preferred Equity units, which are worth significantly less than their common stock. The value of these units fell by 14% in late trading today. However, AMC’s common shares saw a surge of 63% to $7.17, despite the potential complications caused by the judge’s ruling.

AMC has managed to avoid bankruptcy during and after the COVID-19 pandemic, thanks to the support of retail investors. The box office has also shown promising signs of recovery. CEO Adam Aron sees this ruling as the “icing on the cake” of AMC’s turnaround. He emphasized the importance of having the flexibility to raise capital if needed, depending on the box office performance this year.

However, there is now an added risk of an actors’ strike impacting the release schedule for major films. This could have a significant impact on the 2024 box office. The parties involved in the case highlighted AMC’s financial situation as they sought to expedite the settlement approval process.

AMC had previously introduced AMC Preferred Equity units as a workaround to issuing new shares, which stockholders were hesitant to authorize. However, the price of these units started to decline, prompting AMC to propose eliminating them by converting them into common shares and issuing new common shares. This plan was approved by a majority of shareholders, but the judge noted potential inequity in the vote due to the different features of the APEs and common shares.

The settlement reached between AMC and the shareholders failed to address the interests of both AMC common stockholders and APE holders, according to Judge Zurn. Under Delaware law, the court must review all class action settlements to ensure they fall within a reasonable range and satisfy due process requirements. The case involved a comment period open to all AMC shareholders, with thousands of communications received.

The future remains uncertain for AMC, and the company has yet to comment on the judge’s ruling.

Nora Delgado

Nora, an accomplished filmmaker hailing from New York City, transitioned into film journalism after studying journalism at Columbia University. Her experience as a director and screenwriter gives her a unique perspective when covering the latest film industry news and conducting insightful interviews.

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