Over the past few years, AMC Entertainment (NYSE:AMC) has emerged as a force to be reckoned with, backed by an army of loyal supporters, or “apes.” CEO Adam Aron has also embraced the meme status of the company and AMC stock, frequently communicating with these supporters on social media.
Last August, Aron made the decision to create a new class of shares called AMC Entertainment Preferred Equity Units (NYSE:APE). Initially, 517 million units of APE were issued, or one unit for each outstanding share of AMC stock. In addition, each unit represented “an interest in 1/100th of a share” of preferred stock. In September, the company announced that it would sell up to 425 million shares of APE. As of today, there are 1.8 APE units for each share of AMC.
In late December, AMC announced that it would seek to increase the number of authorized shares of AMC in order to enact a conversion of APE into AMC. The meeting to vote on this proposal will be held on March 14.
Shareholders weren’t all too happy with this news. They responded with a class action lawsuit.
AMC Stock: Investors File Class Action Lawsuit Against AMC
Participants of the lawsuit allege that AMC and Aron have diluted the voting power of AMC shares by issuing APE units. Specifically, the complaint states that AMC and Aron have been “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.”
Pennsylvania’s Allegheny County Employees’ Retirement System filed the complaint. It alleges that APE units were created to lower AMC stock shareholder voting power. The plaintiffs seek to stop AMC from proposing a conversion proposal at the March 14 meeting until they can “present a motion for a preliminary injunction.” At the meeting, AMC also seeks to enact a 1-for-10 reverse stock split. A major shareholder of APE, Antara Capital has already agreed to vote in favor of the proposals.
This isn’t the first time that AMC has faced litigation. Last September, the movie-theater chain settled for $17.4 million following accusations of fiduciary duty violations.
On the date of publication, Eddie Pan did not hold (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.
