AMC Stock Jumps After Shock Court Ruling. Meme Volatility Is Back.

The volatility probably isn’t over yet. AMC has filed a revised stock conversion proposal in a bid to address the court’s concerns. CEO Adam Aron said if the court is satisfied he hopes to go ahead with the plan “as soon as possible.”

If that happens, expect the rest of the gains since the ruling to be quickly reversed.

The ruling, by Delaware Vice Chancellor Morgan Zurn Friday, had a big impact on the stocks in a busy weekend for the movie theater group that screened the debut of the Barbie and Oppenheimer films. AMC stock (ticker: AMC) was up 26% Monday to $5.46, while APE (APE) shares, or AMC Preferred Equity, fell 1.4% to $1.76.

Details of the revised settlement have yet to be released but a filing is expected to be made publicly available on Monday, Bloomberg reported, citing people familiar with the matter.

Wedbush analysts, led by Alicia Reese, said they expected the volatility to continue while the judge considers the modifications made by AMC. They added that despite the stock surging, the ruling could lead to more dilution of the stock.

Shareholders challenging the conversion had argued it diluted existing stockholders without compensation, which eventually led to a settlement.

“What may not be clear to AMC’s shareholders is that if the company is unable to convert APE shares, AMC will be forced to issue significantly more APE shares to cover its upcoming cash requirements,” they said. They have an Underperform rating on AMC with a price target of $2.

For AMC, it’s a question of raising money and reducing its debt pile, which mounted during the pandemic when movie theaters were closed. It’s even more urgent given that the current writers and actors strikes cast doubt over movie releases next year and beyond.

The conversion would have allowed AMC to raise more capital by selling stock. Aron told investors that raising fresh equity in the near term “is critical” to the company and that AMC was working to address the court’s concerns.

“AMC must be in a position to raise equity capital. I repeat, to protect AMC’s shareholder value over the long term we MUST be able to raise equity capital. That is especially the case now with the added uncertainty caused by the writers and actors strikes, which could delay the release of movies currently scheduled for 2024 and 2025,” Aron wrote.

AMC reached a settlement with a group of shareholders, who argued the stock conversion diluted existing common stockholders without any compensation in return. The terms of the settlement meant common stockholders would receive shares valued at more than $100 million, lawyers for the plaintiffs said.

But Judge Zurn said she couldn’t approve the settlement because the deal came at the expense of APE unit holders. 

“Awarding more shares to common stockholders necessarily comes at the expense of preferred units; the settlement consideration harms preferred unit holders,” she wrote, according to The Wall Street Journal.

B. Riley analyst Eric Wold maintained a Neutral rating on AMC stock, with a price target of $4.50. He said the wording of the ruling “the settlement cannot be approved as submitted,” likely “opens the door” for an adjusted settlement to be approved.

Write to Callum Keown at [email protected]