HG Vora Questions Penn’s Board Seat Reduction: A Standoff Over Shareholder Rights
New York-based investment firm HG Vora Capital Management has initiated legal proceedings in the U.S. District Court for the Eastern District of Pennsylvania, challenging Penn Entertainment’s recent decision to decrease the number of available seats on its board of directors.
In April, Penn announced its intention to enhance its governance structure by nominating two candidates from HG Vora—Johnny Hartnett and Carlos Ruisanchez—for board positions. Hartnett comes with a background as the former CEO of Superbet Group, while Ruisanchez is the current CEO of Sorelle Capital and has significant experience as both the president and CFO of Pinnacle Entertainment.
Alongside these nominations, Penn also disclosed the immediate retirement of Ron Naples and the decision not to re-elect Barbara Shattuck Kohn and Saul Reibstein, leading to a reconfigured board comprising eight directors, predominantly independent.
HG Vora Responds to Seat Reduction
Despite the proposed changes, HG Vora expressed strong discontent with Penn’s shift to reduce the number of election seats from three to two. This alteration not only contradicts prior communications suggesting three seats would be available but also means that William Clifford, one of HG Vora’s original nominees, would be excluded from contention. In response, HG Vora announced its intention to formally nominate Clifford alongside Hartnett and Ruisanchez for the board.
To formalize its objections, HG Vora filed a preliminary proxy statement with the U.S. Securities and Exchange Commission (SEC), urging shareholders to review its forthcoming definitive proxy materials.
Legal Action Commences
HG Vora’s next step involved filing a formal complaint against Penn, asserting violations of the Pennsylvania Business Corporation Law. The firm claims that the board’s decision to limit the number of seats constitutes a breach of fiduciary duty and violates federal securities laws. Particular concerns include adherence to universal proxy rules and allegations of misleading statements in materials submitted to the SEC.
In its complaint, HG Vora is seeking both declarative and injunctive relief to declare Penn’s revised board structure invalid. The firm insists on rectifying what it perceives as misleading assertions within the proxy materials and argues that all three of its nominees should be allowed to stand for election.
HG Vora characterized Penn’s decision as a “self-serving action with no legitimate corporate purpose,” especially considering the competitive nature of the current election. The firm views this maneuvering as detrimental to shareholder democracy, asserting that the board’s actions predominantly favor existing leaders, particularly the chairman and CEO. HG Vora believes significant reforms are necessary to restore accountability and ensure all options are evaluated to enhance shareholder value.