HG Vora Demands Penn Entertainment Board Seats as Shares Disappoint

Posted on: December 28, 2023, 10:07h. 

Last updated on: December 28, 2023, 10:13h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

HG Vora, a hedge fund with a track record of investing in casino equities, has built an 18.5% stake in Penn Entertainment (NASDAQ: PENN) and is requesting that the gaming company grant it board seats.

PENN Play
An image for Penn Entertainment. Hedge fund HG Vora announced an 18.5% in the stock. (Image: Penn Entertainment)

In a new 13D filing with the Securities and Exchange Commission (SEC), the money manager revealed the position in the region casino operator, which includes common stock and derivatives. Though it didn’t reveal how many directors slots it wants, HG Vora did chide Penn for its lagging stock price. The hedge fund previously held shares of Penn in 2018.

Given the persistent underperformance of the Common Stock and the Issuer’s capital allocation track record, amongst other areas of concern, the Reporting Persons have requested that the Issuer afford them the right to designate highly qualified directors who would be committed to working with the Issuer’s management and fellow Board members to help the Issuer realize its full potential,” said the money manager in the filing.

Shares of Penn jumped 7.48% in early trading on the news, adding to a gain of nearly 16% over the past 90 days — a move fueled largely by the strong debut of the ESPN Bet sports wagering mobile application. Still, the stock is down 10% year-to-date, while rivals such as Caesars Entertainment (NASDAQ: CZR) and DraftKings (NASDAQ: DKNG) have posted impressive gains.

HG Vora Could Push for Change at Penn

HG Vora has the look of an activist investor in Penn. The timing of the hedge fund revealing its stake in the gaming company comes as the window for the operator to nominate directors for 2024 starts on Jan. 8, running through Feb. 7.

Activist investors push for change in a variety of forms. It’s possible that HG Vora could initiate a proxy battle if Penn doesn’t play ball in terms of granting it board seats.

The money manager could take actions ranging from “without limitation, proposing changes in the Issuer’s operations, proposing changes to the Board and the Issuer’s management team, proposing changes to the Issuer’s charter, bylaws or governance structure, capitalization or dividend policy, proposing extraordinary corporate transactions, asset sales, soliciting proxies from other stockholders of the Issuer in connection with meetings of stockholder.”

The hedge fund directly owns 14.5 million shares of Penn equity, or 9.6% of the shares outstanding based on the gaming company’s shares outstanding tally as of Oct. 26. The remainder of the stake comes by way of “a cash-settled swap agreement representing economic exposure to an additional 13,500,000 shares of the Issuer’s Common Stock” and other cash-settle options.

Penn Joins List Seeing Activist Action

To close 2023, activist investors are increasing exposure to gaming equities. Prior to HG Vora revealing its interest in Penn, several hedge funds piled into Entain (OTC: GMVHF), potentially leading to the departure of former CEO Jette Nygaard-Andersen while helping Eminence Capital founder Ricky Sandler land a board seat at the Coral owner.

As for HG Vora, its history of gaming investments, which was highlighted in regulatory filing, is lengthy and mostly successful.

The money manager has previously held positions in Boyd Gaming (NYSE: BYD), Caesars, Gamesys, and the predecessor company of Bally’s (NYSE: BALY).