AMC Entertainment Adopts Staggered Board Structure At Request Of Owner Wanda; Would Make Hostile Takeover Harder

AMC Entertainment Monday unveiled plans to change its board structure in an agreement with majority shareholder Wanda America Entertainment, a division of Dalian Wanda Group of China.

Wanda holds nearly 60% of the voting power of financially strapped AMC through ownership of all the company’s super-voting Class B shares. The nation’s largest theater chain said in an SEC filing that it’s amending its bylaws to change to a so-called classified board with staggered elections. That means, instead of shareholders casting votes annually for all AMC directors, only a third will run each year.

Companies have generally been moving away from staggered boards. The company said Wanda requested the change. No reason was stated. Staggered boards, however, are known for making hostile takeovers more difficult. One Wall Streeter suggested the move could reflect Wanda’s seeking “to maintain control in the hope that the asset bounces back in price and value.”

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AMC shares have plunged this year as the coronavirus pandemic devastated movie-going by closing theaters, slashing capacity and pushing Hollywood studios to shift release schedules and reinvent theatrical windows. The chain said several weeks ago it has funds to last until early 2021 but would needs at least $750 million in cash to make it through next year. Bankruptcy speculation has heated up.

Three big holders of AMC debt including Apollo Global Management are reportedly encouraging the company to file for Chapter 11, promising $1 billion in debtor-in-possession financing that would keep the company running. These so-called first-lien bondholders would be the first in line to recoup in a bankruptcy. Stockholders are last in line.

AMC is still tapping capital markets for cash. It said in the filing that it had asked, and Wanda agreed, to support that capital raising. Wanda won’t register AMC shares for sale when AMC does — something called “piggyback registration rights” that investors are entitled to exercise. Wanda may have liked the option of selling AMC shares since it too likely needs cash, the Wall Streeter speculated, but more AMC shares on the market could depress their value and make it harder for AMC to raise as much.

“In connection with discussions with the Majority Stockholder regarding the important need for the Company to raise additional capital, and the importance of accessing the equity markets quickly, the Company requested that the Majority Stockholder support such offerings and waive certain rights to have a portion of its shares included in the Company’s registration statement for such offerings (known as piggyback registration rights),” AMC said in the filing.

“The Company and the Majority Stockholder discussed the fact that a significant equity raise likely would ultimately result in the mandatory conversion of the Majority Stockholder’s Class B common stock to Class A common stock and thus result in the loss of the Majority Stockholder’s majority voting control over the Company,” it added.

“The Majority Stockholder agreed that it would support such offerings and waive its registration rights in connection therewith, but requested that the Company classify the Board.”

“After considering the Company’s liquidity needs, the request by the Majority Stockholder and various other factors, at a meeting on December 2, 2020 at which an additional equity offering also was being reviewed, the Board determined that it was in the best interests of the Company and its stockholders to amend the Certificate of Incorporation and the Bylaws in order to classify the Board.” That change goes into effect  Jan. 20.

Earlier this month, AMC got a $100 million cash injection through a bond sale to Mudrick Capital Management. That followed previous rounds of debt and equity sales and theater divestitures in Europe. AMC is also negotiating the terms of its leases with landlords.

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