Penn Fires Back at ISS, Says Clifford Candidacy Is Flawed
Late Friday, Penn National Gaming (NASDAQ: PENN) reacted to a report issued earlier by Institutional Shareholder Services (ISS), where the advisory firm advised the gaming company’s shareholders to support a dissident board of directors suggested by hedge fund HG Vora.
The parent company of ESPN Bet indicated that it backs Johnny Hartnett and Carlos Ruisanchez — two of Vora’s suggested candidates — for the board, but reiterated its justification for rejecting William Clifford’s candidacy. Penn remarked that the report from ISS indicated that the board of the gaming company “seems to have thoroughly considered all three of the dissident nominees.”
Clifford, noted by ISS for his relevant gaming industry experience, has connections to Penn, having formerly been the operator's chief financial officer. That seems to be what’s obstructing his candidacy. In its reply to the ISS report, Penn stated that Clifford opposed changes, and upon his departure from that position in 2013, those modifications were implemented, leading to “significant margin improvement.”
Clifford Considers “Outdated,” States Penn
Since Jay Snowden took over as CEO of Penn in January 2020, the firm has sought to evolve from a quiet regional casino operator into a modern online gaming enterprise. Failures in that area are pivotal to Vora's case for three board positions, and it seems Clifford is inclined to agree with the hedge fund's viewpoint.
"Mr. Clifford demonstrated antiquated views of a rapidly changing industry, and the same posture of resistance to exploring value-generating solutions, which we believe would hinder constructive decision-making,” according to Penn’s statement.
Vora has voiced disappointment that Penn cut the number of director positions available for election at the June 17 annual meeting from three to two, deeming it an “affront” to shareholder democracy. In its statement on Friday, the casino operator emphasized that it sought to reach a friendly agreement with the money manager, but those attempts were unsuccessful.
“PENN attempted multiple resolutions with HG Vora, but all of our resolution attempts were rejected. Given HG Vora’s violation of its institutional waivers by multiple state gaming regulators, our ability to allow HG Vora to influence the governance of the Company beyond the evaluation of the nominees was expressly prohibited,” according to the press release.
Penn Claims to Have Rapidly Revamped Board
Penn mentioned that after the next annual meeting, 75% of its directors, including Hartnett and Ruisanchez, will have been appointed to the board since 2019. Although that disproves any claim that the board is outdated, it probably isn't sufficient for Vora and other dissatisfied investors.
The hedge fund's additional important points for change at Penn include the board's complicity in catering to Snowden's online sports betting desires, permitting him to guide Penn into a number of deals that some investors consider misguided, costing the company more than its current market worth. Returns on those investments have been minimal, as ESPN Bet — Penn's newest sports betting initiative — holds a tiny market share in the US.
Possibly strengthening Vora’s case is the fact that although Penn’s board has noticeably changed since 2019, Snowden took charge in 2020, quickly aiming to enter the online sports betting market. Vora noted that since Penn shares reached their highest point in 2021, the stock has significantly declined while the board approved substantial compensation packages for the CEO.
