All eyes are on AMC Entertainment (NYSE:AMC), as the court hearing to decide the fate of the conversion of outstanding AMC Preferred Equity Units (NYSE:APE) into AMC will begin tomorrow, June 29, and end on June 30. Earlier this week, Special Master Corinne Elise Amato issued a recommendation in favor of the conversion.
The drama around APE started after AMC stock shareholders, including the Allegheny County Employees’ Retirement System, filed a class action in opposition of the conversion, an increase in authorized AMC stock and a 1-for-10 reverse split. The class action resulted in a status quo order that halted the proposals.
However, the plaintiffs involved in the class action reached a term sheet agreement with AMC on April 3. The agreement stated that the status quo order would be lifted and that they would receive one share of AMC for every 7.5 shares owned after a 1-for-10 reverse split and a conversion of shares. However, the agreement was denied by the court.
AMC Stock: What to Know About AMC’s APE Hearing Tomorrow
Several AMC shareholders expressed their opinion of the settlement, as the plaintiff’s counsel received over 3,700 letters, some of which raised concerns about fake AMC shares, dark pool trading and “Wall Street corruption.” Many of the letters contained objections. However, none of them swayed Amato, who stated:
“No Objections caused me to doubt that the Court should certify a class for Settlement purposes and that notice was adequately disseminated to AMC stockholders.”
The deadline to file any exceptions to Amato’s recommendation is set for today. The court hearing will end on June 30 at approximately 3:00 p.m. Eastern.
According to The Street, the chances of the court approving the previously agreed upon settlement are high. The hearing has attracted the interest of arbitrage traders, who believe that the price of AMC and APE should converge following an approval of the settlement.
Furthermore, the conversion would benefit AMC by raising about $16 billion in equity. At the same time, it would create dilution, which could lower the price of AMC stock. “The only value for the APEs has been that they could be converted into AMC stock. If that never happened, there would essentially be no value,” explained Eric Wold of B. Riley Securities.
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.
