HG Vora: Penn in breach of fiduciary duties after Board seat election changes
The capital management firm called the move ‘self-serving’ and ‘a breach of fiduciary duties and violation of law.’
Key Points
- Penn changed the number of board seats up for election from three to two on the day of its most recent Annual Meeting of Shareholders
- Major shareholder HG Vora has called the move ‘self-serving’
- HG Vora wanted to get its nominees onto the Board to ‘restore accountability and proper oversight at Penn after years of poor judgment, failed transactions and value destructive actions’
HG Vora Capital Management has called out Penn Entertainment for its choice to reduce the number of seats up for election at its 2025 Annual Meeting of Shareholders from three to two.
The firm has called the move ‘self-serving’ on the part of the Board, with HG Vora suggesting the move was made from fear of Penn losing three board seats. Furthermore, the firm suggests the move had ‘no legitimate corporate purpose and deprives shareholders of their fundamental right to elect directors of their choosing.’
Indeed, HG Vora gave Penn notice in January that it intended to nominate candidates for the three seats at the Annual Meeting of Shareholders. The firm has worked with Penn on compliance in over 20 states, with HG Vora explaining that it intended to get its candidates into seats to ‘restore accountability and proper oversight at Penn after years of poor judgment, failed transactions and value destructive actions.’
As of our reporting in late 2023, HG Vora owned a 18.5% stake in Penn. Around this time, HG Vora was in discussions with Penn to get its representatives in seats, having expressed concern regarding Penn’s capital allocation and stocks even then.
In its 13D filing to the SEC, it wrote, “Given the persistent underperformance of the Common Stock and the Issuer’s capital allocation track record, amongst other areas of concern, the Reporting Persons have requested that the Issuer afford them the right to designate highly qualified directors who would be committed to working with the Issuer’s management and fellow Board members to help the Issuer realize its full potential.”
Such concerns can be seen highlighted in the operator’s FY24 report, with a net loss of $313m reported for the year, and a $350m share repurchase program announced for 2025.
HG Vora went on to explain that, while it was clarified in discussions with Penn that the vote would be regarding three seats, on the day of the meeting, Penn’s Board announced that it would be reducing the number of seats available to be filled. This, HG Vora says, is a breach of fiduciary duties and violation of law, though says this is not the first time Penn has made such an action.
Penn nominated two of HG Vora’s candidates; Johnny Hartnett and Carlos Ruisanchez. However, due to the uncertainty regarding a third seat, HG Vora will nominate three candidates and solicit votes anyway. This third candidate is William Clifford.
HG Vora went on to say, ‘Rather than continuing to waste shareholder capital and corporate resources on entrenching the Board in the name of “activism defense,” Penn should welcome Mr. Clifford to the Board and work with its financial advisors to consider all options to maximize shareholder value.’
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