Saying it wants to “restore accountability” to Penn Entertainment, an activist shareholder has nominated three outside candidates to the gaming company’s board of directors. Parag Vora’s eponymous investment firm, HG Vora, announced the nominations on January 30.
Vora is putting forward former Penn CFO William Clifford, former Superbet Group CEO Johnny Hartnett, and former Pinnacle Entertainment CFO Carlos Ruisanchez. Pinnacle was absorbed by Penn in 2018.
In a January 31 investor note, Jefferies Equity Research analyst David Katz described Clifford’s tenure at Penn as “a productive period for PENN in terms of its growth through acquisitions and green-field developments, and ultimately its share price, which rose ~8.5x.”
Ruisanchez was also involved in Penn’s purchase of Ameristar Casinos. Noting that Hartnett had been an executive at Flutter Entertainment, corporate parent of FanDuel, Katz concluded, “We view the candidates as having relevant credentials.”
HG Vora, which holds a 4.7 percent stake in Penn, hasn’t taken such insurgent action previously, MSN reported. The report said that the investment firm “believes Penn has a poor record of capital allocation, including what it views as failed acquisitions.” MSN cited Penn’s $550 million buyout of Barstool Sports, which was eventually resold for a dollar.
Arguing that HG Vora’s actions should come as no surprise to Wall Street, Katz wrote, “We believe the [nominees] in total should be considered modest positives in terms of the implications of their profiles. The individuals involved bring specific experience to PENN, regional gaming and digital gaming, which should provide an upward bias on the shares which is consistent with our stance.”
According to Katz, HG Vora laid blame for a downfall in Penn shares on the company’s board and its complaisance in decisions that hadn’t gone well for the company. Specifically, in addition to share underperformance, investments in igaming and online sports betting were faulted. Penn stock was trading at $20.40 per share at the time of the Katz report.
Regardless of the outcome of the next shareholder meeting, Katz expected the mere nomination of new directors from outside to materially affect Penn’s course. He said HG Vora’s intervention would result in a “change in the strategic priorities of the company, with more emphasis on the land-based business and a repositioning of ESPN Bet.”
Despite new competition in some of its markets, Penn’s casinos have, Katz reported, outperformed the regional-casino industry on a year-over-year basis. He felt that there was even more upside coming, with new casinos opening in Joliet and Aurora, Illinois. He also cited expansions of M Resort in Las Vegas and Hollywood Columbus in Ohio as harbingers of revenue growth.
“Overall, the increased focus on the strategic priorities could align more closely with stock performance as the process plays out over time,” he summarized.
This isn’t Penn’s first clash with an activist investor. In May of last year, Donerail Group founder Will Wyatt called for a liquidation of assets, “citing continued gambling on uncertain outcomes,” particularly ESPN Bet. Penn took no action at that time.
