HG Vora Capital Management, a hedge fund with a history of investing in casino and online gaming sectors, has revealed that it holds an 18.5% stake in Penn Entertainment, Inc., one of the largest regional casino operators in the US. The fund has also requested that Penn Entertainment grant it the right to appoint directors to its board, citing the company’s persistent underperformance and poor capital allocation.
In a regulatory filing on December 28, 2023, HG Vora disclosed that it owns 14.5 million shares of Penn Entertainment’s common stock, representing 9.6% of the shares outstanding. The fund also has exposure to another 13.5 million shares through cash-settled swaps and options, bringing its total economic interest to 18.5%. This makes HG Vora the second-largest shareholder of Penn Entertainment, after Blackstone Group, which owns 19.9%.
HG Vora, led by former Goldman Sachs banker Parag Vora, said that it has had discussions with Penn Entertainment’s management and board on various topics, including the company’s strategy, operations, governance, capital structure, dividend policy, and potential transactions. The fund expressed its concern over the company’s lagging stock price, which has declined by 10% year-to-date, while its peers such as Caesars Entertainment and DraftKings have posted impressive gains.
The fund also criticized Penn Entertainment’s capital allocation track record, pointing out that the company has spent over $2 billion on acquisitions and investments in the past two years, while generating negative free cash flow and increasing its leverage. HG Vora questioned the value of some of these deals, such as the $2 billion purchase of Score Media and Gaming, a Canadian sports betting company, and the $163 million investment in Barstool Sports, a digital media platform.
HG Vora said that it believes that Penn Entertainment’s stock is significantly undervalued, and that the company has the potential to become a leading player in the US gaming market, especially in the online segment. The fund said that it wants to work with the company’s management and board to help the company realize its full potential, and that it has requested the right to designate highly qualified directors who would be committed to this goal.
The fund did not specify how many board seats it is seeking, but it indicated that it may take further actions if its requests are not met. These actions could include proposing changes to the company’s operations, management, governance, charter, bylaws, capitalization, dividend policy, or corporate transactions, as well as soliciting proxies from other shareholders in connection with meetings of shareholders.
Penn Entertainment has not yet responded to HG Vora’s filing, but it is likely that the company will face pressure from the fund and other shareholders to address its issues and improve its performance. The company operates 43 gaming properties across 20 states, and has a market capitalization of about $10 billion. The company also owns a 36% stake in Penn Interactive, which operates the Barstool Sportsbook app, and a 5% stake in Boom Entertainment, a gaming technology company.
Penn Entertainment’s annual meeting of shareholders is expected to be held in May 2024, and the window for nominating directors for the meeting will open on January 8, 2024, and close on February 7, 2024.
