AMC Entertainment shares crash 24% while its preferred shares went up 21%

AMC Entertainment Holdings recently saw a strong crash of the value of its shares, which went down by 24% in extended trade this Monday, April 3rd. Meanwhile, the price of the company’s preferred shares, under the symbol APE, went up by 21%. The reason for such a difference in behavior between the two is believed to be the fact that the movie theater chain agreed to settle litigation and convert its preferred stock into common shares.

The decision made the demand for APEs skyrocket, pushing the share price up by 21%, as mentioned.

In its filing, AMC noted that it had entered into a binding settlement with a number of its investors. With that being the case, it had decided to turn to the judge and ask to have the related status quo order lifted. This would clear the way for the company and allow it to complete its stock conversion.

As for AMC investors, they previously sued the firm, accusing it and several of its directors of violating the law. According to their lawsuit, the firm and its executives created the preferred shares in order to eviscerate the common stockholder’s voting capabilities.

The stockholders did not agree to issue new shares, and they view it as the right decision, given the fact that preferred shares lost more than 70% of their value since they were issued last August. Their creation was a part of the company’s plan to pay off its debt.

AMC agreed to take the deal

AMC further said that part of the settlement involved its agreeing to pay the plaintiffs one share for every 7.5 shares that they hold. In a different release, the plaintiffs’ lawyers confirmed that the company would have to pay an amount of over $100 million to their clients.

Last month, shareholders also had a vote where it was decided that they would increase the number of authorized shares. They decided to carry out a one-for-10 reverse stock split, which is also a part of the plan to convert APE preferred shares into the company’s common shares.

AMC’s preferred shares were listed under the symbol APE as a nod to WallStreetBets, a subreddit consisting of amateur investors on Reddit. The subreddit plays the role of a stock trading forum, and its community members describe themselves as apes.

The move also made sense since AMC became something of a “meme stock” during the pandemic, and it even managed to raise over $2 billion in 2021. At the time, retail investors massively bought its stock, as well as a number of others, like GameStop’s stock, in order to prevent institutional investors from shorting them.