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A judge blocks proposed settlement on AMC stock conversion plan

A judge on Friday blocked a proposed settlement on AMC Entertainment HoldingsÔÇÖ stock conversion plan that would allow the company to issue more shares, sending its common shares soaring and preferred shares down in after-hours trading.

Delaware Vice Chancellor Morgan Zurn said in the ruling that she cannot approve the settlement ÔÇ£as submitted,ÔÇØ because it would release potential claims by preferred shareholders who were not represented in the lawsuit or settlement.

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AMC shares were up 69% at $7.44 in trading after the bell. Its preferred shares were down 20% at $1.43.

The company was sued in February for allegedly rigging a shareholder vote that would allow AMC to convert preferred stock to common stock and issue hundreds of millions of new shares.

The conversion would dilute the common stockholdersÔÇÖ ownership, but allow AMC to pay down some of its $5.1 billion in debt.

AMC has told investors it is burning cash at an unsustainable rate and warned that an inability to raise capital could force the company into bankruptcy.

It cannot carry out its plan to do so until the litigation has been resolved.

The settlement received more than 2,800 objections from shareholders, a level of interest Zurn called ÔÇ£unprecedentedÔÇØ in her ruling on Friday.

ÔÇ£AMCÔÇÖs stockholder base is extraordinary,ÔÇØ she said, adding that many ÔÇ£care passionately about their stock ownership and the company.ÔÇØ

The judge rejected the settlement after determining the holders of common stock could not release AMC from potential claims that belong to holders of preferred shares, an issue which objectors did not raise.

Many objectors sought permission to opt out of the settlement and sue on their own behalf, dismissing AMCÔÇÖs dire financial predictions as ÔÇ£fear tactics.ÔÇØ

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