Shares of AMC Entertainment (NYSE:AMC) have been volatile on Tuesday, the first trading session of the holiday-shortened trading week. However, that volatility is actually favoring bulls. That’s as AMC stock is up about 10% so far on the day.
At its session high, shares were up 18.3%. Either way, it’s considerably better than the overall market. That’s with the S&P 500 and Nasdaq down 1.9% and 2.2%, respectively.
The gains come amid potential legal action against the company.
Specifically, the “Allegheny County Employees’ Retirement System is pursuing a class-action complaint” against the firm, as well as its board members. That also includes CEO Adam Aron, the company’s vocal leader.
They are doing so in Delaware’s Court of Chancery with the goal of obtaining a temporary restraining order against the company’s planned conversion vote for its AMC Entertainment Preferred Units (NYSE:APE) — commonly known as APE shares — currently scheduled for March 14th.
The complaint states:
“This Action challenges a course of complex and disloyal corporate engineering by the Defendants — described by AMC’s Chief Executive Officer and Chairman, Defendant Adam M. Aron as an exercise in ‘3-D chess’ — devised to achieve a simple aim: eviscerating the voting power of AMC’s Class A stockholders in order to force through approval of a proposed dilutive share count increase that those stockholders repeatedly had rebuffed and were not willing to support at the corporate ballot box.”
Is This Good or Bad for AMC Stock?
Shares of AMC stock are rallying so strongly on the news because the impact of converting the APE stock to AMC stock would be dilutive. Conversely, it should be no surprise that APE stock is currently down on the day, off about 5%. At today’s low, shares were down 10%.
The vote was set in late January and is part of a bigger plan.
Specifically, AMC announced a plan to sell $110 million in APE equity to Antara Capital, LP. Further, “Antara, a current AMC debt holder, will also exchange $100 million principal amount of 2nd Lien Notes due 2026 for approximately 91.0 million APE units thereby reducing AMC’s outstanding debt by $100 million.”
Moving forward, AMC Entertainment wants to hold a vote (with both classes of stock) to vote on converting the APE units into common stock and on a 1-for-10 reverse stock split.
As you can see, it’s a rather complex situation with AMC stock. Investors can also likely understand why some shareholders don’t support the move and/or want to delay the vote.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.