On Wednesday, a U.S. court rejected AMC Entertainment Holdings Inc’s (AMC.N) request to lift a status quo order on the conversion of its preferred stock into common shares. The decision came after AMC investors filed a lawsuit against the theater operator in February, accusing it and several of its directors of violating the law by creating preferred shares in an attempt to undermine the voting power of common stockholders who had not supported the issuing of new shares.
The preferred shares, listed under the symbol “APE,” have experienced a significant loss of value, dropping over 70% since they were issued in August as part of a plan to pay down the company’s accumulated debt. Shareholders voted last month to increase the total number of authorized shares and execute a one-for-10 reverse stock split, intending to convert the preferred shares into common shares.
AMC announced earlier this week that it had reached a binding settlement with some investors and planned to ask a judge to lift the related status quo order, with the aim of accelerating the stock conversion process. As part of the settlement, AMC agreed to provide the plaintiffs with one share for every 7.5 shares they own. The plaintiffs’ lawyers anticipated that the shares paid to their clients would be worth over $100 million.
Delaware Chancery Court judge Morgan Zurn, however, denied the request to lift the status quo order, writing in the ruling that “the parties offer no good cause.” Following the court decision, AMC’s shares increased by 12.8% on Thursday, while the preferred APE stock fell by 10.5%. In a regulatory filing on Thursday, AMC stated that it was still considering its next steps and would not make the litigation settlement payment until the court lifts the status quo order.
Michael Ashley Schulman, partner and chief investment officer at Running Point Capital Advisors, commented on the situation, saying, “In this case, it is possible that if company management gets its way, the valuation of AMC stock and APE preferred will converge over time until APE converts to common.” The court’s ruling highlights the ongoing legal challenges and complexities surrounding AMC’s efforts to restructure its stock and address its debt issues.