(Bloomberg) -- The spread between AMC Entertainment (NYSE:AMC) Holdings Inc.’s common-stock price and its preferred shares widened on Thursday, reversing its narrowing trend earlier this week.
AMC’s common stock rose as much as 15% in trading, while its preferred shares — listed under the ticker APE — fell as much as 15%. That broadened the gap between the two shares to roughly $3, a jump from the $2.34 that it had closed at on Wednesday.
Delaware’s Court of Chancery sent an unexpected blow to traders betting an expedited conversion between the two units after denying the movie theater operator’s motion to lift a status quo order, days after the company reached a settlement with retail investors over the stock conversion. AMC said in a filing it is continuing to evaluate next steps.
It is “a surprise to most investors,” said Cabot (NYSE:CBT) Henderson, who focuses on merger arbitrage and special situations at JonesTrading. “For now, I continue to think this will get done once the parties are able to schedule a settlement hearing.”
The ongoing court case has created uncertainty to risk arbitrage traders who have been looking to capitalize on the spread and are betting that the price gap between the two share classes would vanish once the conversion goes through. A potential delay means those investors who have set up their trades through stocks and options would have to hold their wagers for longer — eating into any potential profits.
Read more: AMC-APE Bet Looks Like Easy Money, But It’s Perilous for Traders
Still, some analysts remain positive. “We believe this merely represents a hurdle as opposed to a roadblock in completing the proposed conversion,” said B. Riley’s Eric Wold, noting the court decision was “likely made more around the speed of the settlement vs. the merits of the terms.”
On Monday, AMC announced that it had reached an agreement with retail investors that, pending the court’s approval, would have enabled it to proceed with its plan for a one-for-one exchange of its preferred shares into its Class A common stock.
“The parties offer no good cause to lift the status quo order,” Delaware Court Vice Chancellor Morgan Zurn wrote in her Wednesday ruling. “Accordingly, the motion is denied.”