AMC Settlement Objector Seeks Fees Over Collapsing Stock Price

The AMC Entertainment Holdings Inc. investor whose settlement objections temporarily halted the conversion of its APE preferred units into common stock is seeking a financial reward for reducing the fees paid to the lawyers who negotiated the deal.

The lead settlement objector, Rose Izzo, argued in a court filing Monday that her attorneys should get $650,000 for persuading a Delaware judge to hand only about $7 million to attorneys for the pension fund and individual investor fronting the litigation, rather than the $20 million they had sought.

The brewing fight over fees represents a coda to the bitter court battle over the theater chain’s AMC Preferred Equity Units, or APEs, which it created last year to raise new equity capital without increasing its authorized share limit—a move blocked by the company’s retail investors. Many of those ordinary shareholders had bought in during the “meme stock” rally that saved AMC from a pandemic-era bankruptcy.

AMC converted the APE units Aug. 25, a day after completing a 10-to-1 reverse stock split. The two moves have left the company with the ability to sell about 390 million common shares worth about $5.4 billion at current prices, according to its filings at the time.

The company’s stock has cratered nearly 80% since the settlement was approved Aug. 11 to close at $11.07 on Monday. Any additional share sales could continue to drive the price down, Bloomberg reported Aug. 25.

Although the lead shareholders “mocked” the idea that the APE conversion would crash AMC’s stock, both their “professional valuation” and their ridicule have already “aged poorly,” Izzo said Monday. The judge’s decision to base their 12% fee award on the post-conversion stock price, as Izzo had urged, will save the company $13 million, according to her filing in Delaware’s Chancery Court.

After Delaware’s top court gave the deal a final green light, “AMC’s market capitalization collapsed,” Izzo said. While 12% of the original settlement valuation would have come to more than $15 million, the company’s new stock price justifies a fee award of no more than $6.8 million, “if that,” she added.

Wild Ride

The case began when a pension fund and other shareholders challenged the plan to let APE holders—many of them arbitragers betting on the stock conversion—vote on AMC’s recapitalization proposals. Hedge fund Antara Capital LP held roughly 30% of the APEs. More than 2,800 shareholders opposed giving the APE investors a vote.

The settlement sought to address those objections by handing out one extra class A share for every 7.5 held, a ratio that—at the time—put the pact’s value at around $110 million to more than $120 million, depending on AMC’s volatile stock price.

Vice Chancellor Morgan T. Zurn rejected the original version of the deal July 21 over sections that would have waived any claims by holders of the common stock, including those also owning APEs. The revised settlement included a narrower release, waiving only claims “that relate to the ownership of common stock.”

The ruling sent AMC’s stock price surging and the APEs plunging. Zurn’s subsequent Aug. 11 decision approving the resubmitted settlement had the opposite effect. The Delaware Supreme Court upheld that ruling Aug. 21, capping a wild ride for investors and arbitragers.

An APE holder filed a new lawsuit Aug. 14 challenging the settlement over claims that it unfairly diluted the preferred units.

‘An Unusual Level of Harassment’

The role of meme stock investors like Izzo has made the case unusual, especially as the focus of the legal proceedings turned to the accord. Some expressed stock dilution concerns in letters to the court, while others cited market manipulation theories that have spread online.

The sometimes toxic online discourse is one reason both Izzo and her counsel deserve to be paid for their role in the case, according to the new court filing, which requests a $3,000 “incentive award” for Izzo herself. Like the lead shareholders, Izzo “endured an unusual level of harassment,” the filing said.

Her lawyers, meanwhile, “fielded months of (and continue to field) phone calls, emails, and correspondence from frustrated stockholders; endured online and text message harassment; and displaced weeks of billable work,” Izzo added.

Izzo is represented by Margave Law LLC and Halloran Farkas & Kittila LLP. AMC is represented by Richards, Layton & Finger PA and Weil, Gotshal & Manges LLP. Bernstein Litowitz Berger & Grossmann LLP, Grant & Eisenhofer PA, Fields Kupka & Shukurov LLP, and Saxena White PA are counsel for the lead shareholders.

The case is In re AMC Ent. Holdings Inc. S’holder Litig., Del. Ch., No. 2023-0215, objector’s fee motion filed 8/28/23.

—With assistance from Yiqin Shen.