The gloves are fully off in the proxy battle between HG Vora and PENN Entertainment.
PENN released a letter to shareholders taking HG Vora to task for their activist movements, which include nominating people for board seats and filing suit against the company in Pennsylvania. This week, the group also wrote to shareholders imploring them to ignore the PENN-endorsed ballot and put forth the HG Vora ballot instead.
Labeling HG Vora’s actions a “blunderbuss campaign”, the letter took exception with how the financial firm has depicted PENN to courts and the press.
Digital vs. retail the heart of PENN disagreement
At the heart of the disagreement is that HG Vora believes PENN is failing in the digital gaming space and should return to its bread and butter, land-based regional casinos in the U.S. On the other hand, PENN and CEO Jay Snowden remain fully invested in growing the company’s presence in digital, with huge investments in brands like theScore, Barstool Sports and ESPN.
“Our industry is undergoing a fundamental transformation. Customers are increasingly looking for online experiences, and the digital space is the core driver of meaningful industry growth. Through the direction and oversight of the Board of Directors and management team, respectively, PENN has been a pioneer in transforming its business to build a digital presence that enables us to engage with a younger audience outside of PENN’s traditional channels and demographics. Simultaneously, we have taken – and continue to take – actions to drive growth, enhance profitability, generate robust free cash flow and return capital to shareholders,” the letter opened.
PENN then pointed out the successes the company has had in the digital space, particularly creating new customers via its digital offering ESPN Bet and moving them into the retail casino space. The letter noted that 34% of new digital customers are located within 50 miles of a PENN property.
While market share for ESPN Bet remains inarguably low, the letter did note that the numbers PENN Interactive is producing are on the rise, with two million new users added since the launch of the ESPN Bet deal in fall 2023.
PENN calls HG Vora actions reckless
In addition to defending its own success, PENN lashed out at HG Vora’s actions, labeling them reckless.
“Over the course of our engagement, HG Vora has consistently (1) made demands of the Company that would have been value-destructive and that were short-sighted, short-term and self-serving in nature, (2) demonstrated flagrant disregard for the views and directives of state gaming authorities, and (3) rejected each of our reasonable offers to reach a mutually agreeable resolution. Given these actions, we believe HG Vora is intent on ensuring all three of its candidates are appointed to the Board, regardless of their suitability and qualifications, and despite only two seats being available for election at this year’s Annual Meeting – all at the expense of the Company and its shareholders,” the company argued.
Vora put forth three candidates for what the firm believed would be three available board seats. Johnny Hartnett and Carlos Ruisanchez were accepted by PENN while former PENN CFO Bill Clifford was rejected.
Clifford rejected over 20th-century mindset
The letter explained the exceptions that the company took with Clifford, despite his previous tenure with the organization, generally labeling him a Luddite lacking the digital know-how to contribute meaningfully to the company.
“During his time as Chief Financial Officer at PENN, Mr. Clifford advocated against key initiatives including bringing IT and financial processes in line with the 21st century, the creation of a customer database and related loyalty program, the development of hotels and other amenities at properties and the adoption of standardized and centralized software, systems and shared services.”
The letter also noted that HG Vora, in its mind, acted in the face of regulators telling them the company was not allowed to have this level of input on board composition without proper licensure. In Massachusetts, for example, HG Vora had an exemption to own 18% of PENN stock without licensure so long as they held a passive role in the organization. This led to a regulatory hearing where the Massachusetts Gaming Commission told the firm it could not participate without obtaining a gaming license.
HG Vora adjusted its position in PENN stock accordingly after the meeting.
The letter stressed that PENN repeatedly met with HG Vora and tried to accommodate their feedback, such as accepting the two board seats.
