Shares of AMC Entertainment Holdings Inc (NYSE:AMC) nearly doubled during Friday's after-market session to trade above $8 on news that sent shares of its counterpart, AMC Entertainment Hldg Pref Equity Units (NYSE:APE) over 20% lower, here's what you need to know.

What Happened: A Delaware court blocked the company’s move to convert its APE preferred units into common stock. The conversion would have diluted the stake of retail investors, the same group that saved the company from bankruptcy at the peak of the pandemic, according to a Bloomberg Law report.

Vice Chancellor Morgan T. Zurn dismissed a settlement proposal in the nine-figure range that would have allowed the conversion to go ahead, while providing additional stock to offset the dilution impact on regular shareholders.

The ruling, contrary to the expectations of both investors — who voted yes on converting the shares back in March — and analysts, sends the case back to square one.

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Key Background: Ape units were issued last year, with a 30% block given to Antara Capital LP, and since then, AMC has been attempting to convert them.

Each unit is theoretically equivalent to 1/100th of a preferred share, which is supposed to be equal to 100 Class A shares, as per the Bloomberg report. However, they have typically traded at a substantial discount due to uncertainties surrounding the conversion.

In the original vote on the Ape conversion plan conducted in March, about 70% of the participating common stockholders supported the proposal. The proposal also received overwhelming support from Ape unit holders, with a 9-to-1 majority in favor.

Nonetheless, a significant number of retail investors either resisted the move due to potential share dilution or chose not to vote on the company proposals, Bloomberg reported.

The ruling creates a hurdle for AMC, which is eager to convert the Ape units and issue additional shares as it grapples with interest rates complicating its loan financing.

It's a rare win for small players in a market dominated by large institutional investors. Though, with the case still open and AMC intent on recapitalizing, it’s clear that the final act of this drama is yet to be played out.

AMC Price action: Shares of AMC are trading 66% higher to $7.32 in after-hours trading.
APE Price action: Shares of APE units are trading 20% lower to $1.43.

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