AMC slumps as lawsuit settlement opens door to capital raise

AMC Entertainment Holdings' shares fell by 19% and preferred shares increased by 14% on Tuesday after a settlement in a lawsuit brought the company closer to its goal of converting APE into common stock to raise capital.

The largest movie theater chain in the world, which is a favorite of retail investors despite massive losses during pandemics, announced that it had reached a binding agreement with shareholders who claimed the creation APE was a ploy to subvert their will and dilute their stake.

Since August, when the preferred shares were issued as part of an effort to reduce debts at the company, they have fallen by more than 70%. AMC raised $1.8 billion in 2021 by issuing shares of common stock to take advantage of the meme-stock frenzy.

B. Riley Securities Analyst Eric Wold stated that the settlement allows AMC to raise up to $16 billion of equity.

AMC's common shares had a market capitalization of $2.65 billion, and APE's was $1.39 billion, as of the close of business on Monday. This gives AMC a total market value of about $4 billion.

The company may now ask the court to lift the order that allowed it to implement its plans for increasing the number of common stock shares and for a reverse stock split of one-for-10 in the conversion from APE to AMC.

Wold stated that if the court approves AMC's plan to convert its stock, it will provide a "path towards meaningful debt reduction or removal" through equity raises.

APE rose 14.2% in the early trading to $1.68, while AMC fell 19% to $4.14.

Wold stated that he expected the price of APE shares and AMC to be convergent until the final approval was granted.