HG Vora Readies Proxy Fight Against Penn Entertainment
Shares of Penn Entertainment (NASDAQ: PENN) surged in late trading on Tuesday after activist investor HG Vora submitted a regulatory filing suggesting the hedge fund might be preparing for a proxy battle with the regional casino operator.
In December 2023, it was disclosed that HG Vora, a hedge fund known for investing in casino stocks, owned 18.5% of Penn shares and was requesting that the gaming firm provide it with board positions. This not only positioned the money manager as one of the biggest investors in Penn, but it also necessitated acquiring gaming licenses in the states where Penn functions — a complicated procedure that could stall activist initiatives.
In a recent 13D submission to the Securities and Exchange Commission (SEC), HG Vora stated that from January 2024, it has been collaborating with gaming regulators in over two dozen states where Penn functions to secure licensing and remove the "restricted" designation, which could enable it to advocate for board positions at Penn. The hedge fund lowered its Penn stake to 4.8% to facilitate the process.
"Following extensive dialogue with the gaming regulator in the single state which recently confirmed it could not, under its customary timeframe, complete its licensure review of the Reporting Persons’ applications (which were initially submitted in January 2024 and deemed complete in May 2024) by the Issuer’s deadline for receiving advance notice, the Reporting Persons decided to restructure its investment in the Issuer,” according to the filing. “On January 13, 2025, the Reporting Persons reduced their voting and dispositive power with respect to the Issuer’s Common Stock to less than 5% while maintaining their economic interest. “
A certain unnamed state declined HG Vora's request. Penn Entertainment manages over 40 gaming locations in 20 states, and its ESPN Bet mobile sports betting app is accessible in 19 states, with Washington, DC expected to be added to that list soon.
What HG Vora Seeks with Penn
HG Vora previously criticized Penn about the makeup of its board of directors, asserting that the gaming firm is breaching the Pennsylvania Business Corporation Law of 1988 (BCL) and the operator’s own articles of incorporation.
In a January 2024 letter to the board, the hedge fund stated that Penn's board composition "disenfranchises shareholders" as it restricted the number of directors eligible for election last year. The money manager stated that it suspected Penn deliberately increased the number of Class III directors to maintain a favorable lineup for the 2024 board elections.
With its ownership reduced to under 5%, HG Vora seems to be gearing up for a proxy battle, aiming to direct its pursuit of board positions straight at Penn shareholders.
“As a result, the Reporting Persons are no longer restricted under the applicable gaming regulations in any state where the Issuer operates from submitting advance notice of recommended board nominees,” HG Vora said in the filing. “The Reporting Persons plan to submit such advance notice to the Issuer.”
HG Vora May Discover Support from Penn Investors
Penn's shares have decreased by 11.61% in the last year, and with today's closing price at $20.56, the stock's value is now roughly 1/7 of its price back in March 2021. The prolonged downturn combined with struggles in iGaming and online sports betting affecting the company's main operations has annoyed certain shareholders, suggesting that HG Vora might discover a willing audience for its activist initiatives.
In May of last year, the Donerail Group — an investor in Penn — wrote a letter to the board criticizing errors in online gaming and observing that CEO Jay Snowden is excessively compensated, suggesting that Penn explore a sale to enhance value for shareholders.
This prompted a months-long period during which there were rumors that Penn could be a possible target for competitor Boyd Gaming (NYSE: BYD), although analysts suggested that Penn was probably not inclined to sell, and neither firm verified that discussions took place.
