Shares of AMC Entertainment Holdings, a popular choice among retail traders, experienced a significant surge after a U.S. court halted the company’s stock conversion plan, which threatened to dilute existing investors’ holdings.
The decision was made by a Delaware court judge who refused to approve AMC’s proposed settlement in a case that accused the company of planning to convert preferred stock to common stock. This move was seen as an attempt to bypass the wishes of common stockholders who had previously opposed the issuing of new shares.
AMC had earlier alerted its investors about its unsustainable cash burn rate and the potential risk of bankruptcy if it failed to raise sufficient capital. The company suggested that selling more shares could be a viable solution to reduce its substantial debt, which currently stands at $5.1 billion.
In response to the court’s concerns, AMC has submitted a revised petition for the stock conversion plan, according to CEO Adam Aron. The court’s decision sparked a trading frenzy, causing AMC’s common shares to surge by 21% to $5.33. However, the company’s preferred shares, known as “APE”, experienced a 3.7% drop to $1.73.
The court’s decision has not only affected AMC’s share prices but also resulted in significant paper losses for bearish investors. According to analytics firm Ortex, these investors are expected to face a $270 million hit.
The AMC saga has also influenced other stocks, with companies like GameStop and Tupperware seeing increases in their share prices. This phenomenon, known as sympathy gains, occurs when the stocks of companies in similar sectors or with similar characteristics rise in response to another company’s positive news.
The AMC case continues to unfold, with investors closely monitoring the situation. The court’s decision has provided a temporary reprieve for AMC’s common shareholders, but the company’s financial challenges remain. As AMC navigates its way through these issues, the market waits with bated breath for its next move.