Shareholder Group Sues Penn Entertainment in Proxy Dispute

HG Vora has been outspoken in its criticism of Penn management and has filed papers with the SEC to nominate three directors to the board in a proxy battle that continues to rage.

Pulling a Fast One

Penn Entertainment has seen its stock plummet since entering the tumultuous waters of online gaming. Historically, a thriving land-based casino business, Penn’s current management team has made questionable decisions in crafting its mobile sports betting brand, spending over $2 billion to merely find a suitable name.

This has led to investor unrest, but none have been as vocal as investment firm HG Vora, which has publicly called for Penn’s management to step down. In the company’s latest legal move, it filed a lawsuit earlier this week in the U.S. District Court for the Eastern District of Pennsylvania seeking declaratory and injunctive relief to invalidate what HG Vora has deemed Penn’s “Board Reduction Scheme.”

According to the document, Penn has reduced the number of seats on the Board from three to two in anticipation of its proxy fight at its annual meeting, which is a breach of its fiduciary duties and violates Pennsylvania’s Business Corporation Law. HG Vora wants shareholders to be able to elect its three nominees to Penn’s board, all of whom are gaming industry veterans, including:

• Pinnacle Entertainment CFO Carlos Ruisanchez
• Former Superbet Group CEO Johnny Hartnett
• Former Penn CFO William J. Clifford

“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.”

Penn Defends Strategy

Penn’s stock has fallen from a high of $142 in April 2021 to where it now sits at $15.71, which has caused uproar among investors and particularly HG Vora, which owns 4.8% of the company.

HG Vora’s founder, Parag Vora, stated that in his company’s 16-year history, it has never sought to elect board members to one of its member portfolio companies. However, desperate times call for desperate measures, and legal action has been taken to give it the best chance of electing three of its three nominees to Penn’s board, hoping a new perspective will prompt better decisions and yield greater financial results.

Although Parag Vora has criticized the Board for “reckless spending” on digital sports betting branding and accused it of “overpaying, overpromising, and not delivering,” Penn’s CEO Jay Snowden admits there have been issues but believes he and his team remain the best long-term solution for the financial health of the company.

Snowden responded to HG Vora’s criticisms with the following response:

“The PENN Board and management team are committed to creating long-term value for all shareholders and will continue to take actions to achieve that objective. We regularly solicit feedback and engage with the investment community about our strategy, performance, and business priorities,” the letter said.

“The Board’s Nominating and Corporate Governance Committee will carefully review HG Vora’s proposed director nominees, in line with PENN’s normal evaluation procedures, and present its formal recommendation regarding the election of directors in the Company’s proxy materials, which will be filed with the U.S. Securities and Exchange Commission ahead of the 2025 Annual Meeting,” it added.