AMC Judge Urged to Let Revised APE Deal Take Effect Right Away

AMC Entertainment Holdings Inc. shareholders who negotiated a nine-figure settlement over the company’s APE preferred units—which a judge rejected last week in a surprise ruling—are urging the judge to swiftly sign off on a new version of the deal and let it take effect immediately.

The stockholders asked Vice Chancellor Morgan T. Zurn in court papers late Tuesday to let the two sides implement the agreement right away—if it’s approved—even as a retail investor pursues a likely appeal aimed at taking over the case, scuttling the settlement, and resuming the court battle.

“The theoretical possibility that the class could enjoy a better recovery through continued litigation is likely outweighed by the risk that AMC and the class itself could suffer far worse harm if litigation continues and AMC fails to raise capital,” according to the filing in Delaware’s Chancery Court.

AMC is expected make a similar filing in the coming days.

The settlement’s precise value has fluctuated with the company’s volatile stock price. It would let the theater chain move forward with its plan to recapitalize—which its leaders say it’s desperate to do—by converting its AMC Preferred Equity units, or APEs, into common stock.

The deal would hand out extra shares to mitigate the dilution of ordinary investors, many of them participants in the “meme stock” rally that saved the company from a pandemic-era bankruptcy.

Real-World Deadlines

The shareholders’ filing was a response to a July 24 letter from Zurn, whose July 21 decision rejecting the settlement—which defied the predictions of most analysts—sent AMC common stock surging and the APEs plunging.

The judge turned the deal down over provisions waiving all claims by common stockholders, including those involving APEs they might also hold. Delaware’s corporate laws require such releases to work on a share-by-share rather than an investor-by-investor basis, she said. The two sides filed a revised pact July 24 narrowing the claims release.

Zurn said in her letter the same day that the settlement approval process can resume without a delay for AMC’s passionate retail investors to file new objections. More than 2,800 wrote to the court to oppose the original agreement, and one brought a lawyer to a settlement hearing in late June.

The judge also chided both sides for dragging their feet on addressing concerns about the deal that she flagged at the hearing, and for failing to keep her apprised of real-world deadlines involving the company’s financing needs. AMC previously requested a ruling “before the capital markets go quiet in August,” she noted.

Although the lead shareholders said in their court filing that they don’t have any “ongoing nonpublic insight into AMC’s financial condition,” they pointed to a public letter over the weekend by CEO Aron Adam stating that “the risk of financial collapse is not whimsical,” particularly in light of the labor strikes rattling the film industry.

The company must give the New York Stock Exchange roughly two weeks’ notice before a stock split that’s part of the APE conversion proposal, and “the period to market and issue new AMC shares to raise capital also will likely take further time,” the shareholders said. “The longer the company remains cash flow negative without the ability to sell stock, the smaller the margin for error.”

‘Blithely Ignore the Risk’

The filing also addressed two additional issues Zurn raised in her July 24 letter: the impact of a Delaware Supreme Court ruling that could be read to weaken the claims against AMC, and a request by the main settlement objector to have the APE conversion put on hold—if it’s approved—so she can appeal.

The state high court ruling doesn’t appear to weaken the claims against the company, the lead shareholders said. But they’d be foolish to “blithely ignore the risk,” which only makes the settlement look stronger, according to their filing.

And an injunction or equivalent pause should only be granted if the judge thinks an appeal is likely to succeed—a determination that wouldn’t make sense if Zurn signs off on the agreement, the shareholders argued. Although the stock conversion would be virtually impossible to unwind, the retail investor can still seek damages if she prevails on appeal, they said.

Bernstein Litowitz Berger & Grossmann LLP, Grant & Eisenhofer PA, Fields Kupka & Shukurov LLP, and Saxena White PA are counsel for the pension fund and investor leading the litigation. AMC is represented by Richards, Layton & Finger PA and Weil, Gotshal & Manges LLP. The retail investors are mostly representing themselves, although one is represented by Halloran Farkas & Kittila LLP.

The case is In re AMC Ent. Holdings Inc. S’Holder Litig., Del. Ch., No. 2023-0215, plaintiffs’ response filed 7/25/23.