I think you are WAY overthinking the special master's comment about the assumption that APE would need to be invalidated.
I think it is quite simple. You have an action here where conversion benefits APE and the objectors say it hurts AMC (otherwise what the heck are they objecting to?).
Well there are about 900M APE shares and about 500M AMC shares, so I think it is fair to assume that if they were to all vote under the new 242(d) the result would be obvious. The 900M shares whose interest it is to have conversion will win that vote. I don't need to even open my statistics books to know that. So the obvious thing is that any objector insisting that this is all voted again, must also be hoping that somehow the court will invalidate the APE shares, otherwise their objection makes no sense.
On the other point you harp on about diluting APE and never converting... That is not an option. The board originally allowed them to dilute if the share price was over $2 (repeating this from memory so may be off here a bit) and as they diluted the share price fell and the board gave further approval to sell if the share price is over $1. However the share price still fell (to as low as $0.65) when the company barely diluted the stock (fyi, the Antara transaction was a private deal that would have no impact on trading dynamics so we are talking minimal dilution driving the share price down). From an equity viewpoint, the structure at that point was extremely dilutive... Further, there was a very real risk you would see the price fall even further and even with all the preferred shares they would be unable to raise sufficient funds. Also, at some point you still need to have that shareholder vote, when now the vast majority of your shareholders demand that you convert the shares. You can't simply give preference to the desires of AMC holders over APE holders and block the conversion perpetually.
I mean, yes, but isn’t there an option to just give people a minute? Because this solution does address all of that since you wouldn’t need everyone to vote on this. And I never said never converting or blocking the conversion perpetually. I just said doing what they said originally and not converting right now. Admittedly, it would be a can-kicking mechanism that would require a further solution but maybe giving everyone a second and some settlement consideration even would be better than just jamming everything through in an indeterminate matter of moments post-decision? I don’t know, I’m just spitballing, imagining what it might be like to genuinely consider the best possible outcome here without forgoing solutions without even stress testing them.
I actually misread part of you article... You suggested a reverse split of AMC allowing them to dilute AMC under the new 242(d)... The thing is that ignores the APE conversion rights. Once you reverse split AMC, you kind of also need to do a make-believe reverse split of APE (i.e. the ratio of APE to AMC gets adjusted for any splits). So now you have 467M of AMC in treasury (your math) and 90M of APE outstanding... Guess what, you just triggered the automatic conversion right.
Ok, I did miss this: "if the Company effects a stock split, stock combination or other similar recapitalization of the Common Stock (in each case excluding an issuance solely pursuant to a reorganization event), then the conversion rate will be adjusted based on the following formula"
In any case, I suspect this whole case is coming to a very quick end. Either VCZ greenlights the settlement, allows them to make minor changes with no notice, or the company says, sorry Mr. Barnes just forced us to hold our meeting so we will take a new vote factoring in the changes to 242(d) and we get conversion and shares to sell in any case.
I've never worked in the industry so I'm also probably missing a lot of things / wrong somewhere in my beliefs, but the arguments against your alternative that I thought of off the top of my head:
1. Listing fees - from what I know, they are paying additional fees to keep APE listed on the exchange; it might not be much but why spend it if you don't have to, especially with the precariousness of their financials
2. Dilution - Just by the APEs existing, the APE dilution has already been somewhat reflected in the markets; AMC is probably currently trading at much less than the price it would have traded at if APEs were never issued. Even if the alternative path were to be taken, I don't think APEs would go to zero because there is always the optionality of a conversion in the future, so they will always hold some value, and that value is taken from common.
3. Offering dynamics - there probably exists the worry of lack of demand for common in a potential offering because of the looming thought of common/preferred collapse. Who would buy the common when the price would fall if they ever announce the conversion in the future? So maybe this alternative will end up not being value accretive anyway as they have to offer at lower prices for anyone to take a nibble.
IMO, the alternative would mean the company would be taking an L that could, in the worst case, potentially harm their future prospects. That being said, I think the chance for such a path is definitely non-zero.
What's hard for me to grasp from a multitude of standpoints is that before the settlement hearing, I looked through social media just to see what shareholders were saying, and the vibe I got was that most people online actually want the settlement to go through (or for AMC to win through other ways). Given the knowledge of the fractures, both intra- and inter-, within the classes, what would be the "best" way of resolving this shitshow for as many parties as possible (legally or morally)? I still can't think of a good answer.
I'm revisiting this post in light of August 1st quickly approaching.
I think you're reading too much into VCZ's quote that APE would need to be invalidated for 242 to be used as an "offramp". My guess is that VCZ is thinking of the case through the prism of what the plaintiffs are technically requesting of the court - ie, to invalidate the APE issuance. However, that's not really what plaintiffs want. Even ignoring their motivations to collect a settlement fee, plaintiff is really just trying to stop the conversion. Anything that threatens to stop the conversion causes AMC to increase and APE to decrease. In other words, what would plaintiffs think about a solution that involved having a new vote under 242 to increase the authorized AMC shares and then issuing new AMC shares (not APE!) to raise new funds? The plaintiffs would love it because AMC would increase in price, and that's their goal (other than the goal of the lawyers who want a settlement payment).
If I were Aron, here's what I would be thinking. If I can terminate the settlement agreement the stock will rocket, then hold a shareholders meeting and get approval to increase the number of authorized AMC shares under 242. Then sell AMC onto the market. Deal with the APE conversion later. This is more or less your idea.
The problem I see is that the settlement agreement can't be terminated without meeting the conditions in that termination paragraph. However, one of the conditions was the court changing the release. VCZ did change the release last Friday, and perhaps that gave AMC a termination right. Obviously AMC did not exercise it and instead filed an amended settlement. Probably a poor decision.
The best case for AMC in my opinion is that somehow the judge doesn't approve the settlement and AMC simply has another vote under 242 and raises money with AMC shares; however, it's hard to see on what grounds the judge would deny the settlement at this point.
If only; as if plebs could be so lucky in a world designed to grind them up and spit them out without so much as a gold watch anymore, probably more likely to win the lottery than find justice when the bandit is better situated. It was a fun thought while it lasted though, Le sigh…
Chance, are we at a stage now where we are all waiting for VCZ to issue her decision, or could she summon the parties to suggest that she has reservations on certain parts of the settlement stipulation (eg extent of the release) and advise them to work out a new proposal, if they wish, or run the risk of outright rejection?
There won’t be any such thing as an outright rejection from the current posture, IMO. I discussed this in my last piece but perhaps you died somewhere along the side of the road before getting there. 😂
I think you are WAY overthinking the special master's comment about the assumption that APE would need to be invalidated.
I think it is quite simple. You have an action here where conversion benefits APE and the objectors say it hurts AMC (otherwise what the heck are they objecting to?).
Well there are about 900M APE shares and about 500M AMC shares, so I think it is fair to assume that if they were to all vote under the new 242(d) the result would be obvious. The 900M shares whose interest it is to have conversion will win that vote. I don't need to even open my statistics books to know that. So the obvious thing is that any objector insisting that this is all voted again, must also be hoping that somehow the court will invalidate the APE shares, otherwise their objection makes no sense.
On the other point you harp on about diluting APE and never converting... That is not an option. The board originally allowed them to dilute if the share price was over $2 (repeating this from memory so may be off here a bit) and as they diluted the share price fell and the board gave further approval to sell if the share price is over $1. However the share price still fell (to as low as $0.65) when the company barely diluted the stock (fyi, the Antara transaction was a private deal that would have no impact on trading dynamics so we are talking minimal dilution driving the share price down). From an equity viewpoint, the structure at that point was extremely dilutive... Further, there was a very real risk you would see the price fall even further and even with all the preferred shares they would be unable to raise sufficient funds. Also, at some point you still need to have that shareholder vote, when now the vast majority of your shareholders demand that you convert the shares. You can't simply give preference to the desires of AMC holders over APE holders and block the conversion perpetually.
I mean, yes, but isn’t there an option to just give people a minute? Because this solution does address all of that since you wouldn’t need everyone to vote on this. And I never said never converting or blocking the conversion perpetually. I just said doing what they said originally and not converting right now. Admittedly, it would be a can-kicking mechanism that would require a further solution but maybe giving everyone a second and some settlement consideration even would be better than just jamming everything through in an indeterminate matter of moments post-decision? I don’t know, I’m just spitballing, imagining what it might be like to genuinely consider the best possible outcome here without forgoing solutions without even stress testing them.
I actually misread part of you article... You suggested a reverse split of AMC allowing them to dilute AMC under the new 242(d)... The thing is that ignores the APE conversion rights. Once you reverse split AMC, you kind of also need to do a make-believe reverse split of APE (i.e. the ratio of APE to AMC gets adjusted for any splits). So now you have 467M of AMC in treasury (your math) and 90M of APE outstanding... Guess what, you just triggered the automatic conversion right.
Ok, I did miss this: "if the Company effects a stock split, stock combination or other similar recapitalization of the Common Stock (in each case excluding an issuance solely pursuant to a reorganization event), then the conversion rate will be adjusted based on the following formula"
So, instead of a reverse split, this whole thing would have to be predicated on a share increase.
Not following what you mean.
In any case, I suspect this whole case is coming to a very quick end. Either VCZ greenlights the settlement, allows them to make minor changes with no notice, or the company says, sorry Mr. Barnes just forced us to hold our meeting so we will take a new vote factoring in the changes to 242(d) and we get conversion and shares to sell in any case.
I definitely took your notes to heart! You were right about the part I missed, I just think there is another alternative way to handle that. ☺️
Damn, lawyers really do think of everything haha
I've never worked in the industry so I'm also probably missing a lot of things / wrong somewhere in my beliefs, but the arguments against your alternative that I thought of off the top of my head:
1. Listing fees - from what I know, they are paying additional fees to keep APE listed on the exchange; it might not be much but why spend it if you don't have to, especially with the precariousness of their financials
2. Dilution - Just by the APEs existing, the APE dilution has already been somewhat reflected in the markets; AMC is probably currently trading at much less than the price it would have traded at if APEs were never issued. Even if the alternative path were to be taken, I don't think APEs would go to zero because there is always the optionality of a conversion in the future, so they will always hold some value, and that value is taken from common.
3. Offering dynamics - there probably exists the worry of lack of demand for common in a potential offering because of the looming thought of common/preferred collapse. Who would buy the common when the price would fall if they ever announce the conversion in the future? So maybe this alternative will end up not being value accretive anyway as they have to offer at lower prices for anyone to take a nibble.
IMO, the alternative would mean the company would be taking an L that could, in the worst case, potentially harm their future prospects. That being said, I think the chance for such a path is definitely non-zero.
What's hard for me to grasp from a multitude of standpoints is that before the settlement hearing, I looked through social media just to see what shareholders were saying, and the vibe I got was that most people online actually want the settlement to go through (or for AMC to win through other ways). Given the knowledge of the fractures, both intra- and inter-, within the classes, what would be the "best" way of resolving this shitshow for as many parties as possible (legally or morally)? I still can't think of a good answer.
This last point is really the whole bowl of wax.
I'm revisiting this post in light of August 1st quickly approaching.
I think you're reading too much into VCZ's quote that APE would need to be invalidated for 242 to be used as an "offramp". My guess is that VCZ is thinking of the case through the prism of what the plaintiffs are technically requesting of the court - ie, to invalidate the APE issuance. However, that's not really what plaintiffs want. Even ignoring their motivations to collect a settlement fee, plaintiff is really just trying to stop the conversion. Anything that threatens to stop the conversion causes AMC to increase and APE to decrease. In other words, what would plaintiffs think about a solution that involved having a new vote under 242 to increase the authorized AMC shares and then issuing new AMC shares (not APE!) to raise new funds? The plaintiffs would love it because AMC would increase in price, and that's their goal (other than the goal of the lawyers who want a settlement payment).
If I were Aron, here's what I would be thinking. If I can terminate the settlement agreement the stock will rocket, then hold a shareholders meeting and get approval to increase the number of authorized AMC shares under 242. Then sell AMC onto the market. Deal with the APE conversion later. This is more or less your idea.
The problem I see is that the settlement agreement can't be terminated without meeting the conditions in that termination paragraph. However, one of the conditions was the court changing the release. VCZ did change the release last Friday, and perhaps that gave AMC a termination right. Obviously AMC did not exercise it and instead filed an amended settlement. Probably a poor decision.
The best case for AMC in my opinion is that somehow the judge doesn't approve the settlement and AMC simply has another vote under 242 and raises money with AMC shares; however, it's hard to see on what grounds the judge would deny the settlement at this point.
If only; as if plebs could be so lucky in a world designed to grind them up and spit them out without so much as a gold watch anymore, probably more likely to win the lottery than find justice when the bandit is better situated. It was a fun thought while it lasted though, Le sigh…
Chance, are we at a stage now where we are all waiting for VCZ to issue her decision, or could she summon the parties to suggest that she has reservations on certain parts of the settlement stipulation (eg extent of the release) and advise them to work out a new proposal, if they wish, or run the risk of outright rejection?
There won’t be any such thing as an outright rejection from the current posture, IMO. I discussed this in my last piece but perhaps you died somewhere along the side of the road before getting there. 😂
LOL!