## A Battle for Boardroom Control: HG Vora Takes on PENN Entertainment The corporate world is often a battleground, and this week, the fight is reaching a fever pitch. Investor activist HG Vora has thrown down the gauntlet, launching a lawsuit against gaming giant PENN Entertainment. At stake? The very right of shareholders to choose their representatives. Vora is aiming to install three independent directors, arguing that their expertise is essential to steering the company towards a brighter future. But PENN Entertainment isn’t backing down, setting the stage for a high-stakes showdown that could reshape the company’s direction. Buckle up, because this is a corporate clash you don’t want to miss.
Filing of Complaint and Preliminary Proxy Statement: HG Vora’s Move Against PENN Entertainment
HG Vora Capital Management, LLC, together with its affiliates, has taken a significant step against PENN Entertainment, Inc. by filing a complaint in the United States District Court for the Eastern District of Pennsylvania. This complaint is a bold move by HG Vora, which seeks to protect the fundamental right of shareholders to elect all three of its highly qualified nominees to the PENN Entertainment Board of Directors. In addition to the complaint, HG Vora has also filed a preliminary proxy statement with the Securities and Exchange Commission (SEC) in connection with PENN Entertainment’s Annual Meeting.
The Board Reduction Scheme: A Self-Serving Action by PENN Entertainment
HG Vora alleges that PENN Entertainment has implemented a Board Reduction Scheme, which reduces the number of seats up for election from three to two, during a contested election. This move, according to HG Vora, has no legitimate corporate purpose and is a self-serving action that only benefits the incumbent directors, notably its Chairman and CEO. The Board’s manipulation of the Company’s election rules is an affront to shareholder democracy and only benefits its incumbent directors.
Allegations of No Legitimate Corporate Purpose
Experts believe that PENN Entertainment’s move to reduce the number of seats up for election is a clear indication of the Board’s intention to undermine the democratic process of electing independent directors. By doing so, the Board is attempting to maintain its grip on the Company, thereby denying them the opportunity to elect independent nominees who can truly represent the interests of shareholders.
HG Vora believes that substantial changes are necessary to restore accountability and ensure all options are considered to maximize shareholder value. The complaint seeks declaratory and injunctive relief determining that PENN’s Board Reduction Scheme is invalid, that PENN must correct the materially false and misleading statements in its proxy materials, and that PENN must allow shareholders an opportunity to elect all three independent nominees proposed by HG Vora – William J. Clifford, Johnny Hartnett, and Carlos Ruisanchez – to the Board.
Allegations of PENN Entertainment’s Wrongdoings
HG Vora Capital Management, LLC (together with its affiliates, “HG Vora”) has filed a complaint in the United States District Court for the Eastern District of Pennsylvania against PENN Entertainment, Inc. (Nasdaq: PENN) (“PENN” or the “Company”) and its Board of Directors (the “Board”). The complaint alleges that PENN Entertainment has committed several wrongdoings, including violation of Pennsylvania’s Business Corporation Law and breach of fiduciary duties by the Board of Directors.
According to the complaint, the Board of Directors engaged in a self-serving action by reducing the number of seats up for election from three to two at the Company’s upcoming 2025 Annual Meeting of Shareholders. This move, known as the “Board Reduction Scheme,” is alleged to be an affront to shareholder democracy and benefits only the incumbent directors, particularly the Chairman and CEO.
The complaint also alleges that PENN Entertainment failed to abide by the universal proxy rules and made materially false and misleading statements and omissions in proxy materials filed with the United States Securities and Exchange Commission (“SEC”) regarding the Annual Meeting.
Violation of Pennsylvania’s Business Corporation Law
The complaint alleges that PENN Entertainment violated Pennsylvania’s Business Corporation Law by reducing the number of seats up for election without a legitimate corporate purpose. The law requires that a corporation provide adequate notice to its shareholders of any changes to the election process.
By reducing the number of seats up for election, PENN Entertainment allegedly deprived its shareholders of the opportunity to elect all three independent nominees proposed by HG Vora: William J. Clifford, Johnny Hartnett, and Carlos Ruisanchez.
Breach of Fiduciary Duties by the Board of Directors
The complaint alleges that the Board of Directors breached its fiduciary duties by engaging in self-dealing and placing the interests of the incumbent directors ahead of those of the shareholders.
The Board’s decision to reduce the number of seats up for election is alleged to be a conflict of interest, as it benefits the incumbent directors and maintains their control over the Company.
Failure to Abide by Universal Proxy Rules
The complaint alleges that PENN Entertainment failed to abide by the universal proxy rules, which require that the Company provide shareholders with a single proxy card that allows them to vote for all candidates nominated by the competing slates.
By failing to provide a universal proxy card, PENN Entertainment allegedly made it more difficult for shareholders to vote for the independent nominees proposed by HG Vora.
Materially False and Misleading Statements
The complaint alleges that PENN Entertainment made materially false and misleading statements in its proxy materials filed with the SEC regarding the Annual Meeting.
The Company allegedly misrepresented the qualifications and experience of its incumbent directors and failed to disclose the Board’s conflict of interest in reducing the number of seats up for election.
Seeking Relief and Accountability
HG Vora is seeking relief and accountability from PENN Entertainment for its alleged wrongdoings. The complaint demands that the Company take the following actions:
- Declaratory relief determining that the Board Reduction Scheme is invalid;
- Injunctive relief requiring PENN Entertainment to correct the materially false and misleading statements in its proxy materials;
- Allowing shareholders to elect all three independent nominees proposed by HG Vora to the Board.
HG Vora believes that these actions are necessary to restore accountability and ensure that all options are considered to maximize shareholder value.
Declaratory Relief
HG Vora is seeking declaratory relief to determine that the Board Reduction Scheme is invalid. The Company allegedly engaged in self-dealing and breached its fiduciary duties by reducing the number of seats up for election.
The complaint alleges that the Board’s decision was motivated by a desire to maintain its control over the Company and to prevent the election of independent directors.
Injunctive Relief
HG Vora is seeking injunctive relief to require PENN Entertainment to correct the materially false and misleading statements in its proxy materials.
The Company allegedly misrepresented the qualifications and experience of its incumbent directors and failed to disclose the Board’s conflict of interest in reducing the number of seats up for election.
Allowing Shareholders to Elect Independent Nominees
HG Vora is seeking to allow shareholders to elect all three independent nominees proposed by the Company: William J. Clifford, Johnny Hartnett, and Carlos Ruisanchez.
The complaint alleges that the Board’s decision to reduce the number of seats up for election deprived shareholders of the opportunity to elect these qualified and experienced nominees.
The Future of Shareholder Democracy and Accountability
The lawsuit filed by HG Vora has significant implications for shareholder democracy and accountability. The complaint highlights the need for corporations to prioritize transparency and fairness in their governance practices.
The Board Reduction Scheme implemented by PENN Entertainment is a prime example of how corporations can use self-serving tactics to maintain their control over the Company and prevent the election of independent directors.
The lawsuit also highlights the importance of universal proxy rules in ensuring that shareholders have a fair and equal opportunity to vote for all candidates nominated by competing slates.
Implications for Shareholder Value
The lawsuit filed by HG Vora has significant implications for shareholder value. The complaint alleges that the Board Reduction Scheme was motivated by a desire to maintain the Board’s control over the Company and prevent the election of independent directors.
The complaint also alleges that the Board’s decision to reduce the number of seats up for election deprived shareholders of the opportunity to elect qualified and experienced nominees.
HG Vora believes that the Company’s actions were motivated by a desire to maintain its control over the Company and prevent the election of independent directors.
Need for Substantial Changes
The lawsuit filed by HG Vora highlights the need for substantial changes to restore accountability and ensure that all options are considered to maximize shareholder value.
The complaint alleges that the Board’s actions were motivated by a desire to maintain its control over the Company and prevent the election of independent directors.
HG Vora believes that the Company must take significant steps to restore transparency and fairness in its governance practices and to ensure that shareholders have a fair and equal opportunity to vote for all candidates nominated by competing slates.
Conclusion
In a decisive move, activist investor HG Vora has filed a lawsuit against PENN Entertainment, aiming to uphold the fundamental rights of shareholders. Vora argues that PENN’s recent actions, including the nomination of only two independent directors to its board, infringe upon the shareholders’ ability to elect their preferred candidates. Vora contends that the three independent directors it proposes are highly qualified and possess the necessary expertise to guide PENN towards a more prosperous future. This legal battle highlights the ongoing tension between corporate governance and shareholder activism, raising crucial questions about the balance of power within publicly traded companies. The outcome of this lawsuit could have far-reaching implications for the corporate landscape. If Vora prevails, it could set a precedent, empowering shareholders to exert greater influence over board composition and, consequently, the direction of their investments. Conversely, a loss for Vora could embolden companies to limit shareholder influence, potentially hindering the ability of activist investors to drive positive change. This case serves as a reminder that the battle for corporate control is often fought not on the trading floor, but in the courtroom, with the stakes being the future direction of entire companies. As the legal proceedings unfold, the eyes of the business community will be watching closely, eager to see how this pivotal case shapes the evolving relationship between shareholders and corporations.