AMC Entertainment stock (NYSE:AMC) fell 8% on Thursday, but the move was linked to a 7.1% increase in AMC Preferred Equity units (NYSE:APE) — and the reason behind those moves is yet another in a long list of legal developments around the theater chain’s most prominent effort to raise new funds.
AMC Entertainment is trying to sell up to 25 million shares of its common stock to raise capital and reduce its debt. However, this plan has been challenged by a group of investors who hold APE units, which are convertible into common shares at a ratio of 1:1. The APE holders claim that AMC Entertainment breached its fiduciary duty by issuing new shares without their consent, diluting their stake and voting power.
The dispute has been going on for months, with several lawsuits filed in different courts and arbitration proceedings initiated by both sides. The latest development is that AMC Entertainment and the APE holders have agreed to a settlement framework that would resolve all pending litigation and arbitration, subject to certain conditions and approvals.
According to a regulatory filing by AMC Entertainment on Wednesday, the settlement framework would involve AMC Entertainment issuing 10 million new APE units to the existing APE holders, as well as paying them $43.5 million in cash. In exchange, the APE holders would agree to convert all their APE units into common shares at a ratio of 1:1.03, meaning they would receive 1.03 common shares for each APE unit they own.
The settlement framework would also require AMC Entertainment to obtain shareholder approval for an amendment to its certificate of incorporation that would authorize the issuance of the new APE units and the conversion of all existing APE units into common shares. The amendment would also eliminate certain provisions that give the APE holders veto rights over certain corporate actions by AMC Entertainment.
The settlement framework is not final and binding until it is approved by both parties and the court. It is also subject to various risks and uncertainties, such as potential objections from other stakeholders, regulatory approvals, market conditions and shareholder votes. If the settlement framework is not consummated, AMC Entertainment and the APE holders would continue to pursue their respective claims and defenses in court and arbitration.
AMC Entertainment stock closed at $25.64 per share on Thursday, down 8% from Wednesday’s close of $27.91 per share. AMC Preferred Equity units closed at $24.75 per unit on Thursday, up 7.1% from Wednesday’s close of $23.10 per unit.
