AMC jumps after shock court decision. Meme stock volatility is back.

The volatility is probably not over yet. AMC has filed a revised share conversion proposal in an attempt to address the court’s concerns. Chief Executive Adam Aron said if the court is satisfied, he hopes to move forward with the plan “as soon as possible.”

If that happens, expect the remainder of the gains since the ruling to reverse quickly.

The ruling, issued Friday by Delaware Vice Chancellor Morgan Zurn, had a big impact on the stock on a busy weekend for the film group. which screened the debut of the Barbie and Oppenheimer films. Shares of AMC (ticker: AMC) rose 35% in premarket Monday to $5.95, while shares of APE (APE), or AMC Preferred Equity, fell 1.7% to $1.77.

Details of the revised agreement have not yet been released, but a presentation is expected to be made publicly available Monday, Bloomberg reported, citing people familiar with the matter.

Wedbush analysts, led by Alicia Reese, said they expected the volatility to continue as the judge considers the changes made by AMC. They added that despite the increase in shares, the ruling could lead to further dilution of shares.

Shareholders who questioned the conversion argued that it diluted existing shareholders without compensation, ultimately leading to a deal.

“What may not be clear to AMC shareholders is that if the company is unable to convert APE shares, AMC will be forced to issue many more APE shares to meet its upcoming cash needs,” they said. They are rated underperform on AMC with a $2 price target.

For AMC, it’s about raising money and reducing its debt, which accumulated during the pandemic when movie theaters were closed. It’s all the more urgent given that the current writers’ and actors’ strikes cast doubt on movie releases next year and beyond.

The conversion would have allowed AMC to raise more capital through the sale of shares. Aron told investors that raising fresh capital in the short term “is critical” for the company and that AMC was working to address the court’s concerns.

“AMC must be in a position to raise equity capital. I repeat, to protect AMC’s long-term shareholder value, we MUST be able to raise equity capital. That is especially the case now with the added uncertainty caused by the writers’ and actors’ strikes, which could delay the release of movies currently scheduled for 2024 and 2025,” Aron wrote.

AMC settled with a group of shareholders, who argued that the share conversion diluted existing common shareholders without any compensation in return. The terms of the agreement meant that common shareholders would receive shares valued at more than $100 million, lawyers for the plaintiffs said.

But Judge Zurn said she could not approve the deal because it was done at the expense of APE shareholders.

“Awarding more shares to common stockholders necessarily comes at the expense of preferred units; deal consideration hurts preferred unit holders,” he wrote, according to The Wall Street Journal.

B. Riley analyst Eric Wold maintained a Neutral rating on AMC shares, with a $4.50 price target. He said the ruling’s wording “cannot pass as presented” probably “opens the door” for a tight deal to pass.

Write to Callum Keown at callum.keown@barrons.com