Activist Penn Entertainment investor warns of "legally improper" board structure
HG Vora general counsel Mandy Lam writes to operator to air concerns over imbalanced class of directors on board in bold letter
HG Vora has told PENN Entertainment that the operator’s current board structure is “legally improper and disenfranchises shareholders”, in another twist in the hedge fund’s activist manoeuvres.
New York-based HG Vora, which is actively seeking to appoint a director to the PENN’s board after increasing its stake in the business to 18.5% late last year, has written to the operator to air its concerns.
In a letter published on the US Securities and Exchange Commission (SEC) website, HG Vora general counsel Mandy Lam wrote to PENN chief strategy officer, Chris Rogers, stating the current board structure was in violation of Pennsylvania Business Corporation Law (BCL).
She argued that PENN’s board structure was “artificially constricting the number of directors who may stand for re-election at the company’s 2024 annual meeting”.
Lam’s letter hinges on the fact there are a disparate number of board members representing each class of director in the business’ hierarchy.
Under the Pennsylvania Business Corporation Law of 1988, each class of director, of which there are three, should be “as nearly equal in number as possible”.
The HG Vora head proceeded to detail that as of PENN’s 2020 annual meeting, the board was made up of seven directors.
Of those seven directors, two were in Class I, three in Class II, and two in Class III.
Class I board members serve a one-year term, with Class II and Class III serving two- and three-year terms, respectively.
In effect, these terms limit the number of board members who can stand for re-election each year.
Then, in November 2020, PENN added a third Class III board member and in June 2021 added a fourth Class III board member.
The letter claimed that PENN’s board allocation of two directors in Class I, three in Class II, and four in Class III fails to comply with the requirements set out by Pennsylvania law.
Lam wrote: “We expect the company to remedy this violation promptly, and we reserve all rights to take action to ensure PENN complies with the BCL.”
The fund said the addition of a director of its choosing on the board would allow the operator to “realise its full potential”.
HG Vora’s latest application of pressure on PENN comes after the hedge fund claimed there was a “persistent underperformance of the [PENN’s] common stock”.