In an unexpected turn of events, AMC Entertainment witnessed a remarkable 37% surge in its stock price on Monday. The rapid climb came after a crucial court ruling on Friday blocked the company’s plan to convert preferred stock to common stock and issue millions of new shares.
The legal dispute emerged when Delaware Judge Morgan Zorn struck down AMC’s strategy to convert its preferred equity stocks into common stocks, which the company had hoped would alleviate its debt burden but posed a threat of diluting shareholders’ value.
The failed plan was initially intended to resolve a lawsuit that had been filed in February, accusing AMC of manipulating a shareholder vote related to the stock conversion. However, Judge Zorn found the proposed deal unacceptable, as it would have relinquished too many claims from preferred shareholders who were not represented in the lawsuit. Over 2,800 investors voiced their opposition to the deal, urging the court to reject it.
In response to the court’s ruling, AMC promptly submitted a revised plan on Saturday to address the matter, though the specific details of the new proposal have not been disclosed to the public.
AMC Entertainment, known as a “meme stock,” experienced a meteoric rise in early 2021, fueled by a social media frenzy orchestrated by retail investors from the Reddit community r/wallstreetbets. This extraordinary surge in buying activity drove the stock price to an all-time high of $72.62 in June 2021. Despite facing potential bankruptcy at that time, AMC capitalized on the soaring stock price to raise capital, steering the company away from financial collapse.
However, AMC still grapples with debt, prompting CEO Adam Aron to express the urgency of raising capital. He highlighted the risks associated with financial collapse and cited cautionary examples of other meme stocks like Regal Cinemas and Bed, Bath and Beyond, which ultimately succumbed to bankruptcy, leaving their shareholders with losses.
The recent spike in AMC’s share price coincides with a triumphant weekend at the U.S. box office. Movies like Warner Bros.’ “Barbie” and director Christopher Nolan’s biopic thriller “Oppenheimer” contributed to the fourth-largest box office weekend in history. With approximately 7.8 million movie-goers worldwide, this was AMC’s most successful weekend since 2019, marking a significant recovery for the movie industry post the Covid-19 pandemic.
Additionally, the theater chain embraced the viral social media trend “Barbenheimer,” where moviegoers planned to watch a double feature of the two contrasting films. Earlier, AMC had reversed its contentious plan to implement higher ticket prices for seats with better views of the screen, as it showed no significant increase in sales for the upgraded seats during the pilot phase.
As AMC Entertainment forges ahead, investors and movie enthusiasts eagerly await the resolution of the revised stock conversion plan, hoping it will provide the necessary financial stability to tackle the company’s debt challenges and secure a promising future for one of the entertainment industry’s most iconic brands.