AMC Stock Surges 38% After Court Rejects Stock Conversion Plan
In a surprising turn of events, AMC Entertainment shares experienced a significant surge of 37% on Monday after Delaware Judge Morgan Zorn blocked the company’s plan to convert its preferred equity stocks into common stocks and issue millions of new shares. This news comes on the heels of a successful weekend at the box office for AMC and a recent reversal of the company’s proposed ticket pricing plan.
The Stock Conversion Plan and Lawsuit
AMC had implemented the stock conversion plan with the objective of eliminating its debt, which had been a pressing concern for the company. However, the plan faced opposition from preferred shareholders who argued that it would dilute their value. In February, a lawsuit was filed against AMC accusing the company of rigging a shareholder vote over the stock conversion.
Delaware Judge Morgan Zorn, in her ruling, stated that she could not accept the proposed deal as it would have waived too many claims from preferred shareholders who were not represented in the lawsuit. Over 2,800 investors wrote to Zorn opposing the deal. As a response, AMC submitted a revised plan to settle the matter on Saturday, but the details of the revised plan have not yet been made public.
AMC as a “Meme Stock”
AMC Entertainment is categorized as a “meme stock,” a term used to describe stocks that experience significant volatility due to the influence of social media and online communities. In early 2021, retail investors from the Reddit community r/wallstreetbets came together to buy shares of AMC and other stocks that had been shorted by large investment firms. This buying frenzy led to a surge in AMC’s stock price, reaching an all-time high of $72.62.
The increased stock price allowed AMC to raise capital, saving the company from potential bankruptcy. However, the company still faces significant debt. CEO Adam Aron expressed his hope that the stock conversion, if approved in its revised form, would provide the necessary funding to pay down the debt. Aron also warned investors of the potential risks, referencing the bankruptcies of Regal Cinemas and Bed Bath & Beyond, both of which had experienced similar stock volatility.
Box Office Success and Pricing Plan Reversal
AMC’s surge in share price coincided with a notable weekend at the box office for U.S. theaters. The movie “Barbie” from Warner Bros. grossed over $160 million in the U.S., while director Christopher Nolan’s biopic thriller “Oppenheimer” grossed over $80 million. This resulted in the fourth-largest box office weekend in history. AMC reported its best weekend since 2019, with 7.8 million movie-goers internationally.
The success of these movies was attributed to a viral social media trend called “Barbenheimer,” where moviegoers planned to see a double feature of the two contrasting films. Approximately 20,000 people had purchased double feature tickets in advance.
Additionally, AMC recently reversed a controversial plan it announced in February to charge more for seats with better views of the screen. The company canceled the plan due to minimal sales increase for the premium seats in pilot theaters.
The surge in AMC Entertainment shares following the rejection of the stock conversion plan highlights the volatile nature of meme stocks and the role of social media in influencing the stock market. While the revised plan is still pending, investors should carefully consider the risks associated with this type of investment. AMC’s recent box office success provides a glimmer of hope for the company but navigating the challenges of debt and evolving consumer preferences remain critical for its future.
<< photo by Badreddine Farhi >>
The image is for illustrative purposes only and does not depict the actual situation.
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