AMC Entertainment Holdings, the world’s largest movie theater chain, saw its common stock shares surge in after-hours trading on Friday, after a Delaware judge denied approval of a settlement that would have allowed the company to convert its preferred shares into regular stock and issue more shares.
The settlement was challenged by thousands of shareholders who objected to the dilution of their ownership stake and accused AMC of rigging a shareholder vote in February. The company argued that the conversion plan was necessary to raise capital and avoid bankruptcy amid the pandemic-induced slump in theater attendance.
However, Vice Chancellor Morgan Zurn ruled that the settlement was not fair to the holders of preferred shares, who were not represented in the lawsuit or the settlement. She said she could not approve the settlement “as submitted,” because it would release potential claims by preferred shareholders against AMC.
“AMC’s stockholder base is extraordinary,” Zurn said in her ruling. “Many care passionately about their stock ownership and the company.”
Following the ruling, AMC’s common stock shares jumped 69% to $7.44, while its preferred shares dropped 20% to $1.43. AMC has not commented on the ruling or its next steps.
