(Bloomberg) — AMC Entertainment Holdings Inc. won court approval of a stock conversion plan that had spurred a shareholder lawsuit and cast a cloud over the movie theater chain’s efforts to secure new financing.
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The settlement, approved on Friday, includes extra shares for individual investors, thousands of whom had opposed it, citing the dilution of their shares among other concerns. Many of them fueled the pandemic-era “meme stock” rally that saved AMC from a bankruptcy filing.
The ruling by Delaware Chancery Court Judge Morgan Zurn caps a protracted and bitter legal fight over AMC’s preferred equity units, or APEs, which pitted the company’s top executives against part of that retail investor base. Last month Zurn surprised the market by rejecting an earlier version of the settlement, sending the value of AMC’s regular shares soaring and the APEs plunging. She found that the original deal waived too many potential claims against the company.
Read the judge’s opinion here
AMC shares sank as much as 34% in postmarket trading, while the preferred shares spiked more than 29%, narrowing the spread between the two to around $1.50.
Offsetting the Dilution
In a 110-page opinion, Zurn concluded that the settlement was reasonable, finding that while the plaintiffs’ claim of breach of fiduciary duty had merit, a remedy for that claim was “challenging to identify.” She noted that the revised pact included “additional shares of common stock awarded to current common stockholders to offset the dilutive effects.”
Zurn’s basic job was to decide whether the settlement was fair given the strength, or weakness, of the shareholders’ claims. She concluded that their main legal theory was relatively strong but not a sure thing, and that their risk of losing made the settlement a fair deal.
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“Where a plaintiff establishes directors acted with the primary purpose of impeding the exercise of stockholder voting power,” the company’s board members “must demonstrate their actions were reasonable,” the judge wrote….
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