By Scott Kanowsky
Investing.com -- The spread between common and preferred stock in AMC Entertainment Holdings Inc (NYSE:AMC) narrowed in premarket U.S. trading on Tuesday after the movie theater chain announced it reached a proposed settlement in a class-action lawsuit brought by some investors.
AMC said the move will lead to the lifting of a status quo order and permit the conversion of preferred stock into common stock to proceed.
In a filing with the U.S. Securities and Exchange Commission, AMC agreed to make settlement payments in the form of common stock. Under the terms of the deal, the company will pay one common share for every 7.5 owned by the plaintiffs. Lawyers representing the plaintiffs said the payouts to their clients will be worth over $100 million.
Preferred shares (NYSE:APE), which trade under the ticker APE, were first issued last August after AMC shareholders refused to back further stock sales. Shareholders in AMC sued the group and its leaders, claiming that the creation of the preferred shares effectively allowed the company to circumvent common stockholders who were against adding more shares.
The announcement sent common shares - listed as AMC - tumbling by more than 27% to $3.71 by 07:42 ET (11:42 GMT) on Tuesday morning, while preferred APE shares jumped by over a fifth to $1.82. "APE" is a reference to the retail investors on the Reddit forum wallstreetbets who, under the moniker "Apes," helped fuel a surge in the shares during the 2021 meme-stock boom.
Last month, investors voted in favor of carrying out a one-for-ten reverse stock split and converting APE shares into common equity. The decision was widely expected to allow AMC to raise funds and pay off debt through stock sales and an increase in its total share base.