Most likely, the volatility is still ongoing. In an effort to allay the court's worries, AMC has submitted a revised stock conversion proposal. If the court is satisfied, CEO Adam Aron said he expects to move forward with the plan "as soon as possible."
If that occurs, anticipate a swift reversal of the remaining gains made since the decision.
In a busy weekend for the movie theater chain that screened the world premieres of the Barbie and Oppenheimer films, the decision by Delaware Vice Chancellor Morgan Zurn on Friday had a significant influence on the stocks. AMC stock (ticker: AMC) increased 26% on Monday to $5.46, while AMC preferred equity (APE) shares decreased 1.4% to $1.76.
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Although the new settlement's specifics have not yet been made public, a filing is anticipated to do so on Monday, according to sources familiar with the situation who spoke to Bloomberg.
Wedbush analysts, under the direction of Alicia Reese, predicted that the volatility would persist until the court took the changes made by AMC into consideration. Despite the stock's recent gains, they continued, the decision might cause more equity dilution.
A settlement was eventually reached after shareholders who had challenged the conversion claimed it diluted existing investors without providing them with compensation.
What "may not be clear to AMC's shareholders" is that "AMC will be forced to issue significantly more APE shares to cover its upcoming cash requirements" if the business is unable to convert APE shares, they claimed. On AMC, they have an Underperform rating and a $2 price target.
AMC has to raise money and pay off its debt, which accumulated while movie theaters were closed due to the epidemic. Due to the current writer and actor strikes, movie releases for the upcoming year and beyond are now even more in jeopardy.
By selling stock, the conversion would have allowed AMC to raise additional funds. The company's ability to raise new equity in the near future, according to Aron, "is critical" to the business, and AMC is striving to allay the court's worries.
"AMC must be able to raise equity funding. I'll say it again: in order to sustainably preserve AMC's shareholder value, we MUST be able to raise equity capital. This is especially true in light of the ongoing writers' and actors' strikes, which may postpone the release of films already scheduled for 2024 and 2025, according to Aron.
AMC and a number of shareholders who claimed the stock conversion dilute existing common stockholders without providing them with any compensation reached a settlement. According to the provisions of the agreement, common investors would receive shares worth more than $100 million, according to attorneys for the plaintiffs.
Judge Zurn, however, ruled that because the compensation was at the expense of the owners of APE units, she was unable to sanction it.
According to The Wall Street Journal, she said, "Awarding more shares to common stockholders necessarily comes at the expense of preferred units; the settlement consideration harms preferred unit holders."
Eric Wold of B. Riley maintained a Neutral rating on the AMC stock and set a $4.50 price objective. The phrase "the settlement cannot be approved as submitted," according to him, "opens the door" for the approval of an altered settlement.
Callum Keown can be reached at callum.keown@barrons.com.
