Just days after a Delaware Chancery Court granted AMC Entertainment (NYSE:AMC) permission to convert its AMC Preferred Equity Units (NYSE:APE) to common AMC stock, a group of the preferred shareholders filed a class action suit against it.
The new suit claims the approved conversion is shortchanging APE shareholders. CEO Adam Aron promised a 1 for 1 rate, but the rate approved by the court is less than that.
So far, investors are ignoring the objection. AMC shares rose 8% on Aug. 15 and another 2% overnight, opening at $3.67. APE was also up on Aug. 15, but only by 2%, gaining another 1% in the pre-market to open at $2.16.
No One is Happy
The dispute the Chancery Court just settled was filed by AMC shareholders objecting to APE’s 1 for 1 conversion. They finally won an adjustment downward. Now, on the heels of that approval, APE shareholders are objecting, proof that no one involved is happy, except perhaps AMC CEO Adam Aron.
AMC sold the preferred for cash and had $458 million of it at the end of June. The coming 1 for 10 reverse stock split means common stockholders can be diluted further with new stock without bumping up against approved limits.
All this is aimed at keeping AMC afloat. AMC was a profitable $5 billion/year enterprise before the pandemic but is only now returning to that run rate. Meanwhile, it has accumulated almost $9 billion in debt that must be paid back. And Hollywood is still on strike.
During 2020, AMC lost $4.5 billion as Covid-19 shut its theaters. Losses in 2022 were still near $1 billion. Its rival Cineworld, which owns Regal Cinemas, meanwhile, declared bankruptcy last year and is only now emerging from it.
AMC Stock: What Happens Next?
AMC remains an active topic of conversation at Stocktwits and Reddit, with bullish commenters insisting the short squeeze remains on.
As of this writing, Dana Blankenhorn 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.
