AMC's 1-for-10 Reverse Stock Split

In March, AMC Entertainment's  (AMC) - Get Free Report management held a special meeting at which shareholders voted on three important proposals:
1.To increase AMC's authorized common stock so that APE shares can be converted into common shares;
2.To affect a reverse split of the company's common shares at a ratio of 1:10; and
3.To give AMC more flexibility to issue additional common equity in the future.

Shareholders voted overwhelmingly in favor of the proposals, with 87% approving the measures. Naturally, this has been perceived as a major victory for the movie theater chain's board, which for weeks had been urging shareholders to vote in favor of its proposals.

After the vote, AMC CEO Adam Aron told shareholders, "This is a landslide victory that shows your determination to keep AMC a strong and innovative company and the leader of our industry."

AMC management's main goal is simple: To use the APE share conversion to raise more money. However, for this to happen, AMC will dilute its stock — which will most likely hurt its share price.

That's where the reverse stock split comes into play. Aron believes that the reverse split will make AMC's price more robust, at least superficially.

"For a variety of reasons, including the technical listing rules of stock exchanges, we think it's unwise for our shares to be trading at levels in the single digits," he recently said.

But before the conversion of APEs into common shares and the 1-for-10 reverse split can occur, AMC must first overcome a class action lawsuit that claims its board members "breach[ed] their fiduciary duties by carrying out a strategy to dilute the voting power of AMC's Class A stockholders."