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(Reuters) – (The views expressed here are those of the author, a columnist for Reuters.)
If all goes well, shareholder attorneys and defense attorneys for AMC Entertainment Holdings Inc (AMC.N) Hoping for the court to approve their proposed $100 million class action settlement is almost an afterthought.
But to do so, AMC and the plaintiffs who sued to block the company from proceeding Novel Equity Restructuring Delaware Chancery Judge Morgan Zurn will have to be persuaded to drop the formal process of deciding whether the deal is fair to AMC common stockholders before they receive compensation from the settlement.
that’s why.
this Suggest a solutionwhich was announced in a press release and in the SEC record Monday afternoon, will resolve Class Action Claims A meme stock investor in AMC common stock. (Broadly speaking, Meme stock is traded by retail investors participating in online stock-trading forums.)
Investors who backed the movie theater company during the pandemic claim they were short-changed in the equity restructuring, which called for the conversion of heavily discounted AMC preferred stock into common stock. AMC shareholders actually voted for last month’s reorganization, but plaintiffs’ lawyers — who argue shareholder votes were tainted — won a so-called status quo order Freeze preferred stock conversions until Zurn rules on their motion to bar restructuring.
The new settlement calls for the continuation of the stock conversion and requires common stock owners to receive consideration for combining their stock with less expensive preferred stock. Under the terms of the settlement, common stockholders will receive one additional new share for every 7.5 shares they owned prior to the restructuring. The total value of the new shares could be as high as $118 million, according to the plaintiffs’ attorneys.
Under the terms of the settlement, the conversion and grant of new shares will be immediate. AMC will effect the share consolidation, and within days, owners of pre-converted common stock will receive their newly issued shares. Investors won’t have to wait months for the class-action approval process to unfold before they can benefit from the deal.
The only obstacle to such a quick settlement is the status quo order signed by Zurn.
so in a sports Lawyers for the plaintiffs, Bernstein Litowitz Berger & Grossmann, filed Monday night; Grant and Eisenhoff; Fields Kupka and Shukurov; Saxena White; Common shareholders receive their compensation immediately.
“The settlement agreement is a ‘win-win, win-win’ for all affected parties,” the motion said. “The settlement is an extraordinary outcome for AMC’s common stockholders and justifies the removal of the status quo order that currently prevents AMC from merging two of its publicly traded securities.”
The motion, which was not opposed by attorneys for AMC Weil, Gotshal & Manges and Richards, Layton & Finger, said, inter alia, that AMC supported the plaintiffs’ request that Zurn lift the status quo order and allow the company to complete the stock conversion immediately.company explain The conversion will allow AMC to raise new capital and pay down debt.
If Zurn approves the motion, she will only have to address two remaining issues in the class-action approval process: whether to grant AMC immunity from additional claims by common stockholders and how much to pay shareholder attorneys. The rest of the AMC-plaintiff deal—the combination of AMC’s common and preferred stock and the grant of additional shares to common stockholders—would have been a fait accompli.
This is very unusual. Class action settlements typically require court approval because such transactions affect class members — in this case, AMC common stockholders — who may not be aware that their rights are being affected. The approval process requires plaintiffs’ attorneys to notify class members of the settlement, and those class members have an opportunity to object to the proposed transaction. A judge should then scrutinize the settlement to make sure it is fair to all class members.
Shareholder interests precede court approval of class settlements in many Delaware cases, but not quite as in the AMC case. Before 2016, shareholder lawyers typically filed class actions in Delaware after M&A deals were announced, often alleging that companies had omitted material information in proxy disclosures about the deal. These cases are almost always settled with the defendant agreeing to make additional proxy disclosures.
Plaintiffs’ attorneys would then ask a Delaware judge to grant a class release barring future shareholder claims. They also ask for a fee.
Delaware cracked down on class-only M&A settlements that only disclosed information a few years ago, and they’ve since dried up.
In AMC’s motion to dismiss the status quo order, shareholder attorneys failed to point out that investors received tangible compensation in any other class action before the deal was approved by the court. They did point to Delaware precedent in favor of consensual settlements and pointed to potential weaknesses in their own application for a preliminary injunction. The briefing also noted that recently retired Chancery Judge Joseph Sleitz helped broker the AMC settlement.
But Bernstein Litowitz’s attorney for the plaintiffs, Mark Lebovitch, likened AMC’s settlement to the resolution of a merger challenge in an emailed statement, and shareholders were granted an injunction to suspend the proposed deal.
These injunctions, Lebovitch said, “are typically resolved by defendants fulfilling settlement obligations prior to a final approval hearing, such as opening up the sale process, allowing the target to pay a pre-closing cash dividend, or even increasing the target’s stock exchange ratio for shareholders”
Lebovitch said the similar removal of AMC’s status quo order would be a boon to common stockholders seeking to prevent the conversion of their shares. Allowing investors to receive their additional shares immediately, rather than waiting for full class approval, “makes the settlement fairer,” he said. “We are limiting class members’ market exposure while giving them the option to sell the shares they receive immediately, or hold and hope for greater value as the company pays down its debt and strengthens its financial position.”
An AMC spokesman did not respond to my inquiries about the proposal to allow the share conversion to take effect until the class-wide settlement is approved.
As of Tuesday afternoon, Zurn had not requested a hearing on the motion to lift the status quo order.
read more:
AMC shares plunge, ‘APE’ jumps after lawsuit deal
AMC shares plunge as shareholders approve plan to convert APE preferred shares
Analysis – AMC sets unusual shareholder vote to approve meme stock sale
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