AMC Entertainment Under Fire Over Dismaying Financials of Acquisitions

(CN) – AMC Theaters faces a shareholder derivative after the company’s stock took a nosedive when it announced disappointing results on the heels of acquiring smaller theater chains.

Plaintiff Naranbold Gatntulga’s action, filed in the U.S. District Court of the District of Kansas, says AMC bought several smaller theater companies including Carmike Cinemas Inc. in the U.S., and Nordic Cinema Group and Odeon and UCI Holdings in Europe.

Registration filings with the Securities and Exchange Commission, meanwhile, allegedly inaccurately represented the financial wellbeing of Carmike.

During the time period leading up to the purchase of Carmike, AMC CEO Adam Aron claimed that the company had ample time to review, understand and analyze the operations of Carmike Cinemas.

The registration statement allegedly failed to disclose several other issues, including material changes that would impact the Carmike theaters during a secondary public offering, according to the complaint.

In addition, AMC allegedly misrepresented profit margins on the newly acquired international businesses’ food and beverage sales.

Prior to AMC’s purchase of Carmike Cinemas, Carmike had experienced a sharp downturn in patronage due competition and underinvestment in its theaters.

Despite that information, “AMC sold 20,330,874 common shares in the SPO (Secondary Public Offering), realizing net proceeds of approximately $618 million,” according to the 63-page complaint.

AMC waited for market close on August 1, 2017 to announce the company’s “disappointing preliminary financial results for the quarter ended June 30, 2017.” The news saw AMC’s stock drop $5.60, or nearly 27 percent, from the previous day’s closing price.

Prior to the release, AMC led shareholders to believe that the company’s operations and financial success were strong, according to the complaint.

The complaint seeks to disgorge “all profits, including from insider transactions, benefits, and other compensation, including any performance-based or valuation-based compensation, obtained by the individual defendants.”

Gantulga is represented by Karen W. Renwick and R. Frederick Walters with Walters, Renwick, Richards, Skeens & Vaughan P.C.

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