Special Committee: Penn Board Acted In ‘Good Faith’ On Size
An independent review of the decision by Penn Entertainment‘s board of directors to reduce the size of its board this spring found the board acted in the best interests of the company. The Special Litigation Committee Report was filed Wednesday with the U.S. District Court for the Eastern District of Pennsylvania in defense of Penn against H
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An independent review of the decision by Penn Entertainment‘s board of directors to reduce the size of its board this spring found the board acted in the best interests of the company. The Special Litigation Committee Report was filed Wednesday with the U.S. District Court for the Eastern District of Pennsylvania in defense of Penn against HG Vora. The committee is allowed in Pennsylvania when a shareholder brings a derivative lawsuit such as HG Vora brought against the board on behalf of Penn. The activist shareholder sued the casino operator in May over what it called a “Board Reduction Scheme,” though the disagreements between the two started years earlier. HG Vora argued Penn made
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the decision to reduce the board size in spite of HG Vora which suggested three new board members, though Penn supported the nomination of just two. “The Committee determined that the Board acted in good faith within its business judgment and in furtherance of what it believed was the best interests of PENN in its decision to eliminate the Board seat and reduce the overall size of the Board from nine to eight,” reads the report. “A major consideration in the Board’s decision was the Board’s belief that, under the circumstances, it was necessary to avoid the Company’s exposure to potential regulatory risk, which could jeopardize its gaming licenses, its most important assets. “At al
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times, the Board acted with the advice of legal and gaming experts.” Penn board considered multiple factors The committee found the board of directors’ decision to eliminate a board seat came down to multiple factors. The regulatory risk was the most prominent, the report says: “That risk included allowing Mr. [Bill] Clifford, a candidate found to be unsuited by the Board and the nominee of a controversial, unlicensed shareholder seemingly determined to influence corporate governance, to be elected to the Board.” The board used “classic business judgment” to determine Clifford was not a good fit for the board given his “antiquated” views on both Penn and th
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e gaming industry. Multiple board members told the committee Clifford had a “closed mind” and “did not bring a skillset” that would benefit the company. The board also considered multiple areas when deciding to eliminate the board seat, including effects on all stakeholders related to the company, the short-term and long-term interests of Penn and the “resources, intent and conduct” of those looking to acquire control of the company. HG Vora founder and principal Parag Vora told Penn Chairman Emeritus Peter Carlino that he wanted to take control of Penn, remove management and sell the company for parts, according to the report. HG Vora’s ‘disregard of regu
atory restrictions’ considered The board also took into account HG Vora’s history with regulators. Typically, any shareholder with more than a 5% interest in a company must be licensed if it has influence over the company’s decisions. HG Vora and Penn were both informed by gaming regulators that HG Vora’s attempts to influence the company were “improper and impermissible” since it held an 18.5% stake in the company. HG Vora later lowered its directly held stake in Penn to 4.8%, but still maintained another 13% in derivative contracts, the specifics of which are unknown by Penn. “State regulators heavily scrutinize who licensees affiliate with and, in some circum
stances, remove a company’s licenses for affiliating with the wrong entity,” the report reads. “Here, not only did the Board have concern that an affiliation with HG Vora itself posed a regulatory risk, but PENN had a realistic concern that an unlicensed, potentially Unsuitable Person was exercising influence over both PENN and HG Vora. “Therefore, by converting its ownership into derivatives to elude certain jurisdictions’ licensing requirements, HG Vora enhanced the risk that its affiliation with PENN could expose PENN to regulatory violations.” Read the report: The post Special Committee: Penn Board Acted In ‘Good Faith’ On Size appeared first on Legal Sports Report.