In a courtroom drama that has kept investors and moviegoers alike on the edge of their seats, a Delaware judge has signaled the go-ahead for a revised stockholder settlement proposed by AMC Entertainment. This ruling comes after an initial deal put forth by the theater chain was dismissed by the same judge just three weeks ago.

The announcement had an immediate ripple effect in the stock market, with the value of AMC’s preferred stock soaring by an impressive 27%. However, the value of the company’s common stock took a plunge, falling by 27%.

AMC has been frank with its investors about its financial situation, highlighting its cash burn rate as a concern. The approved settlement is poised to address this issue by potentially enabling the company to issue more shares, thus raising funds to tackle its substantial $5.1 billion debt.

The approved class action settlement is centered around AMC’s commitment to allocate common stock, with an estimated value of $129 million, to holders of its common stock. This move is aimed at resolving potential legal claims linked to a stock conversion plan.

Unlike the original settlement proposal, the approved settlement does not offer shareholders the option to opt out. This essentially means that all shareholders are bound by the terms outlined in the agreement.

This latest development follows a previous decision on July 21, when Delaware Vice Chancellor Morgan Zurn rejected an earlier version of the settlement. The reason for the rejection was the inclusion of potential claims by preferred shareholders who were not represented in the initial lawsuit.

However, the revised settlement managed to address this concern, prompting Vice Chancellor Zurn to give it a nod of approval.

Notably, a remarkable 2,800 objections were filed by shareholders in response to the initial settlement proposal. This high level of engagement caught the attention of Vice Chancellor Zurn, who noted that it was an unprecedented level of interest. A considerable portion of these objectors expressed a desire to opt out of the settlement, casting doubt on AMC’s dire financial predictions, which some viewed as mere “fear tactics.”

Vice Chancellor Zurn, in a strategic move, ruled out the opt-out option, citing potential adverse impacts on both the company and its shareholders at large.

The legal wrangle traces back to a lawsuit filed against AMC in February. The lawsuit alleged that AMC manipulated a shareholder vote related to a plan that would see the conversion of preferred stock to common stock, followed by the issuance of millions of new shares.

The plaintiffs behind the lawsuit argued that AMC’s plan was an attempt to sidestep the wishes of common stockholders who vehemently opposed any dilution of their holdings.

Should the proposed settlement not come into effect, the distribution of ownership among common and preferred shareholders would stand at 34.28% and 65.72%, respectively. However, with the approved settlement, these percentages undergo a slight shift, with common stockholders owning 37.15% and preferred shareholders holding 62.85%.

This legal saga has been identified as In re: AMC Entertainment Holdings Inc. Stockholder Litigation. The case bears the number 2023-0215 in the Delaware Court of Chancery.

[Please note: The stock movement information in paragraph 2 has been corrected to accurately state that the company’s common stock fell by 27%, not rose by 27%]