The judge in a case brought by meme stock shareholders against AMC Entertainment declined to approve a settlement unveiled earlier this week that would have allowed the exhibitor to move ahead with plans to convert its AMC Preferred Equity units (APEs) to common stock, among other measures.
AMC on April 3 entered into a binding settlement term sheet with plaintiffs in the case to settle the suit and to request that the status quo order in the litigation be lifted. The settlement, as per usual, required the approval of the judge in the Delaware Chancery Court Case.
“The Court denied the motion to lift the Status Quo Order. Unless and until the Court lifts the Status Quo Order, the Company will not proceed with filing the amendment to the Company’s certificate of incorporation to effect the share increase and the reverse stock split previously approved by stockholders or the conversion of AMC Preferred Equity Units (APEs) into Class A common stock. Nor will the Company make the litigation settlement payment in Class A common stock contemplated by the term sheet at this time,” AMC said this morning.
“The Company is continuing to evaluate next steps,” it added.
Wall Street analyst Eric Wold interpreted the ruling by Vice Chancellor Morgan Zurn as related mainly to the speed of the settlement, not necessarily its merits or terms. A preliminary injunction hearing date previously set for 4/27 is still on at this point and “we could be seeing an indication that the judge wanted the timeline to more fully run its course vs. rushing the conversion process,” Wold said in a note this morning.
An overwhelming majority of AMC shareholders voted for the measures at a special meeting last month. The proposed conversion, reverse stock split and stock authorization are important for the company to be able to de-lever its balance sheet and maintain a viable financial position if the box office recovery falters.