(Reuters) - AMC Entertainment Holdings Inc's shares fell 19% on Tuesday and preferred shares rose 14% after a lawsuit settlement brought the company a step closer to its plan to convert APE to common stock and potentially raise more capital.
The world's largest movie theater chain, a retail investor favorite despite booking massive losses during the pandemic, said it had entered a binding settlement with some shareholders who had claimed that the creation of APE was an attempt to circumvent their will and could dilute their stake.
The preferred shares have lost more than 70% since they were issued in August as part of a plan to pay down the company's debt. AMC in 2021 raised $1.8 billion by issuing common shares to capitalize on the meme stock frenzy.
The settlement clears the deck for AMC to potentially raise as much as $16 billion in equity, B. Riley Securities analyst Eric Wold said.
Meanwhile, AMC common shares' market capitalization stood at $2.65 billion and APE at $1.39 billion as of Monday's close, giving the company a combined market value of $4 billion.
The company can now urge the court to lift an order that would allow it to carry out its plans to increase the total number of common shares and a one-for-10 reverse stock split for the APE to AMC conversion.
If AMC's stock conversion plan is permitted by the court, it would provide "a path to meaningful debt reduction or elimination," through equity raises, Wold said.
APE rose 14.2% to $1.68 in early trading, while AMC slumped 19% to $4.14.
Wold said he expects the price of APE and AMC shares to converge until the final approval is granted.