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AMC Entertainment’s Preferred Equity Plan Rejected By Court, Raises Cash Concerns

AMC faces setback as court rejects preferred equity plan, raising concerns about its financial future.

Movie theater chain AMC Entertainment Holdings Inc (NYSE: AMC) is trending on social media Monday morning and seeing shares of its stock and AMC Entertainment Preferred Equity Units (NYSE: APE) highly active in early trading.

Here’s what investors need to know.

Chairman of the Board & CEO of AMC Theatres Adam Aron speaks onstage during CinemaCon 2021 The State of the Industry and MGM/UAR Presentation at The Colosseum at Caesars Palace during CinemaCon, the official convention of the National Association of Theatre Owners, on August 24, 2021, in Las Vegas, Nevada. (DAVID BECKER/GETTY IMAGES) 

Shares of AMC Entertainment are soaring Monday morning in a continued move following a Friday court ruling.

Barbie and Oppenheimer both opened at the box office at a combine $275 million in the bast weekend at the theaters despite the souring shared prices.

On Friday, the Delaware Court of Chancery ruled against a company settlement proposal that would see AMC convert its APE preferred equity shares into common shares and enact a reverse stock split at a 10-for-1 ratio.

AMC sought to raise capital through the preferred equity units as a way to help improve financials and protect the company from going bankrupt.

Some shareholders opposed the move and rejected the proposed offering, which led to a settlement. The original shareholder proposal received over 70% of support from shareholders.

The court ruling signaled that shareholder votes were “certain to pass,” as AMC issued units that represented fractional shares of preferred stock and voted with them.

“Those units have a mirrored voting feature under which any uninstructed units vote in proportion to the instructed units,” the ruling said.

The court said it received 3,500 communications from 2,850 AMC shareholders related to the preferred shares.

The court rejected the settlement, which could take AMC back to the drawing board.

“We take seriously the Court’s Friday ruling. In response, yesterday we along with the plaintiffs filed with the Delaware Court, a modification of the legal release surrounding the settlement of the Delaware litigation in an effort to address the Court’s voice concern,” said AMC CEO Adam Aron in an open letter Sunday.

Aron said if the court agrees, AMC could move forward with its shareholder plan from March.

In the letter, Aron said that since taking over the CEO role at AMC he has been driven by the goal of not letting AMC fail and putting the company on a path to thrive. 

The CEO said he has been transparent with shareholders, and the company needs to raise capital, especially given the ongoing Hollywood work stoppage and strike.

“AMC must be in a position to raise equity.”

The open letter, which was shared on Twitter, painted a grim picture for the movie theater company if it is unable to raise additional funds.

“If we are unable to raise equity capital, the risk materially increases of AMC conceivably running out of cash in 2024 or 2025.”

View of AMC movie theater in Times Square whose parent company AMC Entertainment facing trouble with investors. “Barbie” and “Oppenheimer” opened at the box office with $275 million despite the troubles with investors. (LEV RADIN/GETTY IMAGES) 

Aron went on to mention rival Cineworld/Regal —  a movie theater that declared bankruptcy — and retailer Bed Bath & Beyond, which became popular with retail traders before declaring bankruptcy.

“We sincerely believe we are on the surest path to ensuring AMC’s survival by allowing us to raise equity and to do so at the highest possible price with the least amount of dilution.”

Aron said he is the largest retail holder of AMC and APE stock with 8.3 million shares owned.

AMC announced in August 2022 the launch of AMC Preferred Equity units.

“The AMC Preferred Equity Units will provide AMC with a currency that can be used in the future to strengthen our balance sheet, including debt repayments, and provide capital for shareholder value-enhancing and transformative investment opportunities,” the company said at the time.

Aron called the move a “bold step” for the company at the time and cited the large short percentage against the company as one of the reasons for the preferred units being issued.

“We believe this is truly great news for AMC and not such good news for those prophets of doom who may be rooting against us,” said Aron.

Aron said the preferred units could be converted into common shares later on.

“Rather than having to worry about survival, the flexibility accruing us from APES can instead let us continue to try for AMC to soar and to thrive.”

Retail trader Matt Kohrs, who has been known as a big supporter of AMC in the past, shared Aron’s open letter with a clown emoji.

Kohrs also recently shared a picture of a Regal movie theater location.

“Super happy I was able to switch my ticket at the last minute. One day you’ll realize how stupid it was to take retail for granted,” said Kohrs in a tweet, tagging Aron in the post.

If AMC continues to struggle and face financial concerns, landlords like EPR Properties (NYSE: EPR) could face pressure. EPR is a REIT that counts movie theaters as one of its largest portfolio holdings.

In December 2022, movie theaters made up 41% of the company’s holdings, according to Entrepreneur.

AMC is one of the company’s largest holdings, which could put pressure on the company’s financials and ultimately its share price.

EPR also counted Cineworld and Regal, which went through bankruptcy, as large tenants.

Produced in association with Benzinga

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