PENN Entertainment and activist investor HG Vora Capital Management are fighting a proxy war, which spilled over just weeks before the casino operator's June 17 annual meeting.
The subject is corporate governance, capital allocation, and strategic direction, and both parties sent forcefully-worded letters to shareholders over two days.
Key takeaways
- HG Vora launched a proxy fight, criticizing PENN’s leadership for poor strategy and governance failures.
- PENN rejected HG Vora’s proposals, calling them short-sighted and harmful to shareholders' long-term value.
- Shareholders will decide on board nominees during the contentious annual meeting scheduled for June 17.
HG Vora, which owns about 4.8% of PENN's outstanding stock, launched its effort on May 13, accusing PENN's management of presiding over chronic underperformance and engaging in what the investor called "value-destructive deal-making." The investment firm aimed at CEO Jay Snowden and board chairman David Handler for taking PENN from a regional casino company to a media and technology conglomerate, a strategy it contends hasn't yielded shareholder returns.
HG Vora's investor letter condemned a series of blockbuster transactions, including buys of Score Media and Gaming, Barstool Sports, and a license agreement with ESPN, as wasting over $4.3 billion of shareholder money. The investor noted PENN's market capitalization declined by around $11 billion since early 2021.
In addition, its online platform ESPN BET, which other PENN investors criticized, has only around 2% market share in the U.S., considerably short of management's stated goal of being ranked among the best U.S. sportsbooks.
The firm also criticized PENN's corporate governance policies as an effort to disenfranchise shareholders by seeking to invalidate HG Vora's notice of nomination and restrict available board seats to be elected. The activist group put forward three independent directors, Carlos Ruisanchez, Johnny Hartnett, and William Clifford.
PENN sticks to its agenda
PENN previously stated it would only support two of the nominees—Hartnett and Ruisanchez—and not Clifford, a former CFO HG Vora attributes with delivering strong financial performance during his tenure.
HG Vora also filed suit to make all three of its nominees eligible for shareholder approval on the ballot. The company asserts the election provides an opportunity to implement "meaningful change" at PENN and communicate a message about ineffective management and entrenchment by the current board.
In a no-holds-barred counterstatement issued today, PENN defended its strategic plan and vehemently lambasted HG Vora's motives. The company branded the investor campaign a "blunderbuss" approach motivated by short-term gains over long-term value creation.
As PENN explains, HG Vora continuously proposed actions that would have disrupted the company, including promoting a 50% leveraged share repurchase and suspending various retail casino development projects in Illinois, Ohio, and Nevada.
PENN also faulted the activist firm for ignoring gaming regulatory compliance complexity, alleging HG Vora disregarded state authority directives during the campaign. The company accused the investor's aggressive maneuvers, including efforts to prompt a complete strategic review of PENN's operations and interactive segment, as out of place given its lack of regulatory stance.
