Activist PENN Entertainment investor seeks seats on operator’s board

HG Vora insists the land-based and online firm is “significantly undervalued” after building 18.5% position in common stock and swaps  

New York-based hedge fund HG Vora Capital Management is seeking to appoint directors to the board of PENN Entertainment to allow the operator to “realise its full potential”.

In an SEC filing, HG Vora said the appointment of highly qualified directors was needed to steer the land-based and online company in the right direction following “persistent underperformance”.

The hedge fund, which also holds a minority stake in 888, has increased its position in PENN to 18.5% through a combination of acquiring common stock and cash-settled swaps.

A total 14.5 million shares of common stock were purchased last week for $441.7m – representing 9.6% of the float – while 13.5 million shares are involved in the swaps deal with a third-party financial institution.

HG Vora said in the filing: “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 realise its full potential.”

It also stated: “The reporting persons have deep experience investing in the casino and online gaming sectors, are long-term shareholders of the issuer, and believe the issuer’s common stock is significantly undervalued.” 

Shares in Nasdaq-listed PENN jumped more than 8% on the back of the filing, yet most of those gains were subsequently eroded as the price dipped.

The company is down 11% in the past year to $26, at the time of writing, and well off the peak of the gambling industry bull run of 2021 when PENN hit an all-time high of $130 a share.

It is thought HG Vora is most concerned over decisions PENN’s leadership team have made with the interactive arm, including the $2bn purchase of Canadian sports media and betting firm theScore in August 2021.

In addition, more than $500m was shelled out in two tranches for controversial sports media company Barstool Sports, only for the brand to be sold back to its original founder, Dave Portnoy, for just $1 last August.

After ditching the struggling Barstool Sportsbook, PENN is looking to turbocharge its US online sports betting ambitions by striking a deal with EPSN to roll out ESPN Bet.

The agreement involves PENN paying the Disney-owned sports network $1.5bn over 10 years, as well as allowing ESPN warrants to acquire around 31.8 million common shares in PENN.

ESPN Bet launched in November across 17 US states.

 

​EGR Intel

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