AMC’s APE Stock Conversion Accord Upheld by Delaware High Court

A settlement allowing AMC Entertainment Holdings Inc. to proceed with a stock conversion opposed by its meme stock base last year was affirmed Wednesday by Delaware’s highest court.

A one-page order signed by Chief Justice Collins J. Seitz Jr. didn’t elaborate on the Delaware Supreme Court’s reasoning for upholding the Chancery Court’s ruling.

The conversion proposal drew a challenge in Chancery Court from a pension fund and an individual investor, who subsequently negotiated the nine-figure settlement that allowed AMC to move forward with its plans to recapitalize.

The dispute centered on the AMC Preferred Equity units, or APEs, that AMC created in 2022 to get around a share limit it couldn’t raise without approval from its retail investor base. Some stockholders opposed the conversion over equity dilution concerns, others believed AMC could survive without additional financing, and many simply didn’t vote on company proposals.

In an unusual twist to the litigation, nearly 3,000 AMC retail investors wrote the Chancery Court with objections.

One of those objectors, Rose Izzo, argued to the Supreme Court that the pension fund and individual investor colluded with AMC to dilute meme stock traders in the movie theater chain’s conversion of preferred equity units into common stock. The Chancery Court should have allowed the objectors to opt out of the conversion, but instead many AMC retail investors have been left destitute, her attorneys said.

Lawyers for AMC and the pension fund argued Izzo sought to reverse a conversion that took place in August 2023, with roughly 7 million settlement shares issued to resolve the lawsuit.

The Supreme Court panel who heard Izzo’s arguments included Seitz and Justices Karen L. Valihura and N. Christopher Griffiths. A panel of three justices typically hears appeals, except in death penalty appeals or other cases where it determines en banc consideration is warranted.

Izzo is represented by Halloran Farkas & Kittila and Margrave Law LLC. AMC is represented by Richards Layton & Finger and Weil Gotshal. The Allegheny County Employees’ Retirement System and investor Anthony Franchi are represented by Bernstein Litowitz, Grant & Eisenhofer, Fields Kupka & Shukurov, and Saxena White.

The case is In re AMC Entertainment Holdings Inc. S’holder Litig., Del., No. 385, 2023, 5/22/24.