HG Vora launches legal challenge against Penn Entertainment over board changes
New York-based investment business HG Vora Capital Management has filed a complaint in the US District Court for the Eastern District of Pennsylvania against Penn Entertainment over plans to reduce seats on its board of directors.
In April Penn proposed several changes to its board. This included the nomination of Johnny Hartnett and Carlos Ruisanchez, both candidates from HG Vora, for seats on the board.
Hartnett is a former CEO of Superbet Group and also spent time with Flutter Entertainment. Ruisanchez is currently CEO of Sorelle Capital and previously worked as both president and CFO of Pinnacle Entertainment.
At the same time, it was announced Ron Naples was retiring immediately. In addition, Barbara Shattuck Kohn and Saul Reibstein will not stand for re-election. This meant the board comprised eight directors, seven being independent.
HG Vora hits out at lost board seat
However, HG Vora took issue with the proposal. Its primary issue was that the number of seats up for election were being reduced from three to two. This came after being told earlier in April that three seats would be available for election. HG Vora had previously stated it would nominate three individuals to fill these seats.
The reduction, HG Vora said, would mean William Clifford, one of its initial three nominees for the seats, would not gain a board place. It said it would nominate Clifford, as well as selected candidates Hartnett and Ruisanchez, to sit on the Penn board.
As such, HG Vora filed a preliminary proxy statement with the US Securities and Exchange Commission (SEC). It also encouraged shareholders to review its definitive proxy materials when they become available.
Legal complaint filed in court
Now, HG Vora has moved to formally file a complaint in court. It accuses Penn of violating Pennsylvania Business Corporation Law and the board of breaching its fiduciary duties by reducing the number of seats up for election.
The filing also alleged Penn violated federal securities laws. This includes failing to abide by universal proxy rules, as well as making “materially false and misleading statements” and omissions in proxy materials filed with the SEC.
HG Vora said it will seek declaratory and injunctive relief determining Penn’s board reduction scheme invalid. It also called for Penn to correct what it said are “misleading” and “false” statements in its proxy materials and allow shareholders to elect all three of its nominees.
“Penn’s board reduction scheme, implemented amid a contested election and while facing the prospect of losing three board seats is, in HG Vora’s view, a self-serving action with no legitimate corporate purpose,” HG Vora said.
“HG Vora believes the board’s manipulation of the company’s election rules is an affront to shareholder democracy and only benefits its incumbent directors, notably its chairman and CEO. HG Vora believes that substantial changes are necessary to restore accountability and ensure all options are considered to maximise shareholder value.”