The APEs Can Be Saved

The story in brief. AMC Entertainment Holdings Inc. became a meme-stock company and sold a lot of stock to retail investors to raise money to buy, among other things, a gold mine. Eventually it sold all the common stock that its corporate charter allowed it to sell, and it couldn’t get its shareholders to approve more, because meme-stock investors mostly don’t vote. So it created a new type of preferred stock, AMC Preferred Equity Units (APEs), and gave out one APE for every share of common stock. Then it sold more APEs to raise more money. Then it held another shareholder vote, in which the common shares and APEs voted together as a single class, to approve (1) issuing new shares and (2) converting the APEs into common stock. This vote was somewhat rigged (the APEs would surely vote yes, and the voting mechanics basically turned non-voting APEs into yes votes), and AMC won it.

Before it could convert the APEs into common stock, though, a class of common shareholders sued, claiming that this was all rigged and illegitimate. AMC and the class eventually settled this lawsuit for a deal in which (1) each APE would convert into one new common share but (2) each old common share would convert into about 1.13 new common shares.1 The Delaware judge hearing the lawsuit, Vice Chancellor Morgan Zurn, did not immediately sign off on the conversion: Some shareholders objected to the settlement, and she heard them out, commissioning a special master to examine the settlement. The special master filed a report last month saying “meh this seems fine.” Many of the objections are meme-stock nonsense about dark pools, hedge funds, phantom shares, naked shorts, etc.; I will not spend a lot of time on them, and neither did the special master or Vice Chancellor Zurn.