- AMC stock surged 23% on Monday after a judge scheduled a hearing for shareholders suing the company.
- The shareholders are accusing the chain of diluting their voting power with a share conversion plan.
Shares of AMC Entertainment Holdings — a company popularized by a meme stock frenzy on Reddit about two years ago — surged 23% to $7.61 on Monday, one day ahead of its fourth-quarter earnings, thanks to some good news for shareholders on the legal front.
A Delaware judge agreed to hold a preliminary injunction hearing request from a group of shareholders who are accusing the chain of sidestepping investors to add more shares according to a Reuters report on Tuesday.
The ruling follows pension fund Allegheny County Employees' Retirement System's filing of a class action suit on February 20, which said AMC attempted to "circumvent" the will of common stock shareholders by creating preferred shares last year — after shareholders rejected proposals to issue more common stocks.
Investors of the movie theatre chain are scheduled to vote on a conversion of the preferred shares to common shares on March 14 — which will increase the pool of common stock and thus dilute the voting power of common shareholders.
But the injunction hearing is scheduled for April 27 — after the scheduled vote — which signals that the conversion may take longer than expected.
This boosted market sentiment and sent AMC common shares soaring. Meanwhile, its preferred shares fell 5.1% on Monday and extended losses in after-hours trade.
The AMC shares surged amid an overall bullish sentiment among retail investors, who have been splashing out on stocks to the tune of $1.5 billion a day this year, according to London-based consultancy firm Vanda Research. Thanks to this, the S&P 500 is up nearly 4% this year so far, while the Nasdaq 100 has surged 10% in the same period.
Insider's Phil Rosen reported on Thursday that the rally is like the meme stock boom of 2021. At the time, retail investors used the WallStreetBets subreddit to identify and then pump the so-called meme stocks.
Forum chatter produced huge swings in the share prices of companies like GameStop and AMC, with GameStop shares surging nearly 1,000% during a two-week period in January 2021, after retail traders banded together to snap up their stock.