Delaware Chancery Court Judge Morgan Zurn has approved a revised settlement in ongoing litigation related to shareholders of AMC Entertainment, TheWrap has confirmed. The turnabout means chairman and CEO Adam Aron can now try to raise capital, which he had previously been prevented from doing after the initial settlement was rejected on July 21.
Aron expressed concern both on Twitter and amid AMC Entertainment’s most recent quarterly earnings call on Tuesday about the possibility of running out of money, even bankruptcy, if the company wasn’t able to secure financing.
“In the short term, AMC has some serious liquidity issues to solve. We should not oversimplify that it will be easy to overcome the obstacles and hurdles in our path,” Aron said in the earnings call.
The settlement will presumably pay off common stockholders in exchange for allowing holders of its preferred shares to convert their holdings into common stock. AMC had not sought preferred shareholders’ consent for the settlement.
The Delaware judge had initially rejected a $129 million settlement offer between the movie theater chain and its common stockholders that would have paved the way for it to sell more shares to stay afloat. The initial settlement was ruled unfair since it would have blocked future legal claims against the company from preferred shareholders.
The exact details of this new settlement are not yet known.
AMC had suffered huge losses due to 1.5 years of forced theater closures amid the COVID pandemic and then struggled through another 1.5 years of comparatively few theatrical releases as studios held back from releasing their biggest tentpoles while emphasizing streaming subscribers over theatrical revenue.
Aron took advantage of AMC’s status as a social media “meme stock” in early 2021 to sell more stock and thus increase liquidity. In August 2022, AMC created a special dividend called “APE” units and then set plans to sell 425 million of its “preferred equity units.”
By December 2022, AMC said it had raised $110 million to pay down debt by selling APE units to Antara Capital, LP to reduce the company’s debt load by around $100 million.
However, converting APEs into AMC common shares was opposed by retail investor critics for diluting the company stock, which brought down the overall share price.
Now that a settlement has been approved, it is presumed that the company can at least try to continue to raise more funds on the strength of comparatively positive box office returns and other variables.
“We need to be able to raise capital if we need to. The dumbest thing we could ever do as a company is run out of cash and other companies in the industry have run out of cash. And some of the armchair quarterbacks on Twitter, who give me advice every day, if I follow their suggestions, we would have run out of cash a long time ago. If I follow their suggestions now, we’ll run out of cash,” he said.
The stock closed on Thursday at a per-share price of $5.26 and has since, as of 7:05 pm, dropped to $3.97.
