HG Vora challenges Penn Entertainment’s board structure

Lea Hogg 4 months ago
HG Vora challenges Penn Entertainment’s board structure

In a letter to Penn Entertainment, made public last week, activist hedge fund HG Vora Capital highlighted concerns stemming from the fact that Penn’s board members are elected every three years. However HG Vora pointed out that two directors on the Penn Board are up for re-election this year having served on the board for over two decades.

The hedge fund, which holds an 18 percent economic stake in Penn Entertainment, including derivatives, has accused the company of violating the Pennsylvania Business Corporation Law. The primary issue lies in the company’s staggered board term structure, which HG Vora Capital believes needs immediate rectification.

It is clear at this stage that if HG Vora Capital is pushing for board seats and remains dissatisfied with Penn’s strategic direction. The company may possibly decide to initiate a proxy contest and nominate its own candidates for all shareholders to vote during the 2024 annual meeting.

Violation is unacceptable says HG Vora

The issue for HG Vora Capital is with the size of the company’s director classes and the activist hedge fund is demanding a solution. HG Vora’s move accentuates the urgency and seriousness of an urgent call for immediate change within Penn Entertainment’s board structure.

“The current structure of the Board is legally improper and disenfranchises shareholders by artificially constricting the number of directors who may stand for re-election at the Company’s 2024 annual meeting.”

HG Vora Capital is accusing Penn of violating the Pennsylvania Business Corporate Law by having a staggered board term structure and it is expecting the company to promptly address this infringement.

Penn Entertainment, a major casino operator, has recently been under scrutiny by activist investor HG Vora Capital. The letter stated, “The current structure of the Board is legally improper and disenfranchises shareholders by artificially constricting the number of directors who may stand for re-election at the Company’s 2024 annual meeting.”

HG Vora Capital is clearly dissatisfied with the company’s actions and this move underscores the urgency and seriousness of the hedge fund’s call for change within Penn Entertainment’s board structure. Penn Entertainment representation was not available for comment requested by SiGMA News.

Impact on stock performance and future implications

HG Vora Capital, which manages approximately $7 billion in assets, has expressed concerns about Penn Entertainment’s stock performance and the way the management allocates capital. The hedge fund has been in discussions to place directors on the company’s nine-member board, especially given the company’s stock price has dropped 31 percent in the last 52 weeks.

Call for change

Two weeks ago, HG Vora Capital Management, led by former Goldman Sachs banker Parag Vora, (in photo on right), formally requested the appointment of directors to Penn Entertainment’s board. The hedge fund, which holds an 18.5% stake in Penn Entertainment, is concerned about the undervaluation of the company’s stock. Following HG Vora’s intervention, there was a 4.8% surge in Penn Entertainment’s stock during early trading. Despite this, Penn Entertainment’s stock experienced a 16% decline throughout 2023. HG Vora Capital, known for its strategic investments and experienced management team, is closely observing the implications of its intervention on the casino operator. Meanwhile, Penn Entertainment has entered the North Carolina online sports betting market through a collaboration with Quail Hollow Club and the Wells Fargo Championship. However, the company reported a net loss of $725.1 million in Q3 2023, with a slight decrease in net revenue.

Penn Entertainment is considered to be a top-tier casino operator. The company owns and operates 41 gaming and racing properties in 19 states, and has a strategic partnership with Barstool Sports, a leading digital sports media company. Penn Entertainment also offers online gaming and sports betting in several markets.

Impact of activist hedge funds on casino industry

The casino industry is witnessing a reshaping trend with the increasing involvement of activist hedge funds. HG Vora Capital, the second activist hedge fund to intervene with a leading casino operator in recent weeks, is at the forefront of this trend. The fund, established by Parag Vora in 2009, is actively addressing concerns over the undervaluation of Penn Entertainment’s stock, indicating a proactive approach to investor strategy in the global gaming market. Despite a 16 percent decline in Penn Entertainment’s stock in 2023, HG Vora’s intervention led to a 4.8 percent surge in early trading. The specifics of HG Vora’s intervention and its implications for Penn Entertainment are under close industry scrutiny. With a portfolio management team known for its experience and strategic focus on distressed situations, HG Vora Capital manages approximately $10 billion in assets, delivering a notable 14 percent annualized return since its inception. This trend of activist hedge funds’ participation is becoming increasingly common in the casino sector, signalling a potential shift in industry dynamics.

Intervention and participation in corporate governance

The proactive involvement of Corvex Management in Entain is another notable example of activist hedge funds’ increasing participation in the casino sector. 

A New York-based hedge fund led by Keith Meister, (photo above on left), a former business associate of Carl Ichan, recently acquired 4.4 percent in Entain. Corvex expressed concerns about the management of Entain, it was followed with the abrupt departure of CEO Jette Nyaard-Andersen, who faced criticism for the company’s dwindling share price and series of ill-fated acquisition. Corvex is now engaging with Entain’s Chairman, Barry Gibson, and interim CEO, Stella David, to actively contribute to positive changes in the organisation. In a similar situation to HG Vora, Corvex is demanding a radical overhaul of the company whilst asserting that the recent CEO departure is a mere preliminary step.

This intervention by Corvex, along with HG Vora’s involvement in Penn Entertainment, reflects the growing trend of activist hedge funds reshaping the casino industry. These funds are not only voicing concerns and taking substantial stakes in these companies, but they are also being assertive in demanding roles that will impact the governance of casino operators, thereby instigating a transformative shift in the future trajectory of the casino industry. This active involvement signifies a potential overhaul in the operational dynamics of these companies. The implications of this could be far-reaching, potentially redefining the contours of the casino industry’s future landscape. The evolving role of hedge funds from passive investors to influential decision-makers, marks a new chapter for the casino industry.

Related topics

Stop Press: the next Eurasia Summit takes place in Dubai between 25 – 27 February!

Activist hedge fund HG Vora pushes for change at Penn (sigma.world)

Entain’s struggling fortunes: US hedge fund urges radical overhaul (sigma.world)

Entain appoints activist investor Sandler to Board (sigma.world)

Is Entain’s loosing streak over? And who is Stella David? (sigma.world)

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