Shares of AMC Entertainment (NYSE:AMC) collapsed more than 30% in after-hours trading on August 11 after the Delaware Chancery Court approved its planned conversion of AMC Preferred Equity (NYSE:APE) shares to common stock. Meanwhile, AMC Preferred Equity units rose over 30% in extended trading hours. The agreement is valued at roughly $120 million, but the timeline to convert APEs to common stock remains unclear.
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Last month, Delaware Judge Morgan Zurn rejected the proposed settlement, citing that it was insufficient and could not be “approved as submitted.” Following this, AMC management immediately filed a renewed proposal. The revised settlement included “additional shares of common stock awarded to current common stockholders to offset the dilutive effects.” Common shareholders have been fighting the conversion plan since it leads to further dilution of equity.
Judge Zurn approved the revised proposal based on its fairness to the plaintiffs’ and shareholders’ claims. AMC shares and APE units have been swinging wildly since their issuance as meme stock investors have been betting on the conversion plan. AMC management has been urging shareholders to approve the stock conversion plan as a means to raise additional capital. The theater chain has been in the doldrums since the pandemic put a pause on movie releases and theater attendance. The conversion of APEs to common shares will help the company raise additional capital and resolve current liquidity issues. AMC stock has gained 33.8% so far this year.
What is the Future of AMC Stock?
The future of AMC stock remains uncertain amid the challenges facing the entertainment company, especially the Hollywood actors and writers’ strike. On TipRanks, AMC stock has a Moderate Sell consensus rating based on two Hold and three Sell ratings. The average AMC Entertainment price target of $2.16 implies 58.9% downside potential from current levels.
