A Delaware judge on Friday denied a proposed settlement on AMC Entertainment Holdings’ stock conversion plan that would have allowed the company to issue more shares. The ruling sent AMC’s common shares soaring in after-hours trading, while its preferred shares fell.
The settlement would have given common shareholders a stock grant worth up to $129 million in exchange for allowing holders of preferred shares to convert their holdings into common stock. However, Judge Morgan Zurn ruled that the settlement was unfair because it would have released AMC from potential claims by preferred shareholders who were not represented in the lawsuit or settlement.
“The proposed settlement would release AMC from claims that could be asserted by preferred stockholders who were not parties to the litigation,” Zurn wrote in her ruling. “This would be unfair to those preferred stockholders, who would be bound by the settlement even though they had no opportunity to participate in its negotiation or approval.”
The ruling is a blow to AMC, which had been hoping to use the settlement to clear the way for its stock conversion plan. The company has been struggling financially since the COVID-19 pandemic, and it needs to raise new capital in order to stay afloat.
However, the ruling is also a victory for some AMC shareholders, who had objected to the settlement. Many shareholders felt that the settlement was unfair because it would have diluted their ownership stake in the company.
In after-hours trading, AMC’s common shares surged as much as 100%. The shares closed at $4.40 on Friday, but they were trading at $8.80 in after-hours trading. Preferred shares, on the other hand, fell as much as 20%.
The ruling is a significant setback for AMC, but it is not the end of the road for the company. AMC could still try to appeal the ruling, or it could try to find another way to raise new capital. However, the ruling makes it more difficult for AMC to achieve its goal of issuing more shares.