Penn Entertainment is under fire from shareholders due to its plummeting stock price, but no investor has been louder in its criticism than financial investment firm HG Vora, which currently owns 4.8% of Penn’s stock.
Investor Unrest
Penn Entertainment has seen its stock price tumble from $142 in April 2021 to where it now sits at $15.86 as of this writing. The company’s gambit into the fiercely competitive world of online sports betting and iGaming has taken a toll due to Penn’s penchant for spending enormous sums of money to brand and subsequently rebrand its mobile sportsbook.
Penn initially bought Barstool Sports for $650 million and created the Barstool Sportsbook before rebranding to ESPN Bet for $2 billion just six months after the Barstool sale was completed. Due to a clause in the sale with the Disney-owned ESPN, Penn was forced to dissolve Barstool Sportsbook and sell the media portion back to founder Dave Portnoy for $1 and 50% of any future sale.
Despite all this money being funneled into the online sports betting market, Penn has only a 2.8% national share of the betting public, and its shareholders have been bearing the brunt of their missteps. This has sparked outrage among HG Vora, an investment company that holds 4.8% of Penn shares.
Penn was made aware that HG Vora wanted their three hand-picked nominees to sit on the board of directors in anticipation of Penn’s shareholders meeting next month. HG Vora has been unflinching in its criticism of Penn’s management, writing the following in a recent statement:
“There have been no repercussions for the Board’s persistent bad judgment and disappointing shareholder returns,” HG Vora wrote. “Change is urgently needed to address these failings.”
Parag Vora, the founder of HG Vora, has criticized the Board for “reckless spending” on digital sports betting branding and accused it of “overpaying, overpromising, and not delivering.”
Shots Fired!
The most recent turn of events in this corporate drama revealed Penn firing back and blasting HG Vora, delivering shots on several different issues. The day after HG Vora submitted their proxy statement, Penn responded in a letter to shareholders.
“Over the course of our engagement, HG Vora has consistently (1) made demands of the Company that would have been value-destructive and that were short-sighted, short-term, and self-serving in nature; (2) demonstrated flagrant disregard for the views and directives of state gaming authorities; and (3) rejected each of our reasonable offers to reach a mutually agreeable resolution.”
Allegations of Reckless Strategy
HG Vora’s endgame is to divest itself of Penn stock with as little financial damage as possible. According to Penn, HG Vora seeks to “execute an approximately 50% leveraged buyback that would increase Penn’s debt to unstable levels.”
Penn has also admonished HG Vora for overstepping its bounds and failing to understand the regulatory environment in which Penn Entertainment operates.
“In a challenging M&A environment and while the business was gaining momentum, HG Vora also demanded PENN publicly announce a strategic review of the whole business and the Interactive segment—despite explicit direction from state gaming authorities that HG Vora was not permitted to seek provisions of this nature,” the letter said. “These short-sighted and self-serving proposals would destroy significant shareholder value while potentially helping HG Vora partially or fully exit its PENN position.”
Penn Entertainment’s shareholder meeting is scheduled for June 17th.
