18 hours Ago By Winston Cho
Last month, shortly before Silver Lake completed its $25 billion deal to take Endeavor private, Carl Icahn disclosed that he had acquired a massive stake in Endeavor. By appearances, it was an unusual buy. Endeavor had been trading above the $27.
50 per share stockholders were slated to receive as part of the deal for most of the past year. He saw a play hedge funds have been jumping on in recent months: a form of merger arbitrage that could force Silver Lake to increase its payout to investors. Several funds are taking to Delaware Chancery Court seeking revaluation of their shares.
On Thursday, four funds filed petitions targeting the transaction. They join at least eight others, including Fifth Lane Partners Fund and North Commerce Parkway Capital, as well as affiliates of HBK Capital Management Group LP and UBS Group AG, that’ve already done so. Their gambit revolves around the nearly 75 percent surge in TKO Group Holdings stock, the majority of which is owned by Endeavor, since the deal was announced in April 2024.
They’re betting that they’ll get a higher payout than proposed since the purchase could undervalue the parent of WWE and UFC. In total, funds that collectively hold more than $1 billion in Endeavor stock are a part of the litigation so far. They’re taking advantage of what’s known as “appraisal rights,” a legal process in which dissatisfied investors ask for a reassessment of the fair value of their shares.
Several more petitions, as well as lawsuits alleging breaches of fiduciary duty against Endeavor executives, including Ari Emanuel and Patrick Whitesell, on behalf of investors that hold tens of millions of shares are expected to be filed in the coming weeks, people familiar with the situation tell The Hollywood Reporter . Silver Lake, in an unusual announcement on March 3 prior to the deal’s close read widely as a warning to arbitrage investors, said the acquisition price is “fair” and that it doesn’t plan on increasing it. “It has been reported in the press that large blocks of shareholders have arbitraged the deal in order to demand appraisal,” it added.
“Silver Lake believes that the pervasive trading by these hedge funds, many of whom accumulated substantial positions in the stock of Endeavor only after the deal was announced, has caused an artificial increase in the stock price.” The announcement “strikes us as a scare tactic to try to shake out weak or unsophisticated holders,” said Roy Behren, co-chief investment officer at Westchester Capital Management, to Bloomberg last month. “We are prepared to exercise our appraisal rights on behalf of our investors, and to pursue this as long as it takes, given how blatantly unfair the deal price is to minority shareholders.
” In the appraisal process, the court will consider the value of Endeavor upon the deal’s close rather than when Silver Lake announced the transaction, among other things. While Endeavor’s core asset is WME, TKO is among its prized holdings. And the conglomerate owns roughly 59 percent of all TKO shares.
Investors are arguing they’re entitled to a higher payout, because the deal doesn’t account for the value of TKO swelling to an all-time high over the past year. By Silver Lake’s thinking, it shouldn’t have to pay more for investors manipulating the stock, with the aim of pursuing appraisal claims. The statute that governs appraisal is broad, saying that courts should consider “all relevant factors” in determining fair value.
This could play into investors’ favor. Prior to the deal, Silver Lake owned 71 percent of Endeavor’s voting rights, with co-CEO Egon Durban and managing director Stephen Evans on the board’s executive committee. There aren’t any indications that it entertained third party bids for Endeavor.
Public shareholders weren’t given a say. And while such a vote isn’t necessary, some companies still opt to hold one, including when Charter announced a deal to acquire Liberty Broadband last year in an all-stock transaction. A unique wrinkle with appraisal: There’s no motions practice, meaning that there’s no exit ramp out of the litigation since it’s not subject to dismissal or summary judgment.
There will be a fair value hearing. Additionally, shareholders taking part in the process are entitled to interest of five percent above the Federal Reserve interest rate, which equates to roughly nine percent from when the deal closed to the court’s decision, though companies are allowed to prepay to save on accrual. The deadline to submit requests to exercise appraisal rights was Feb.
4. Also at play are breach of fiduciary duty lawsuits that are expected to be filed in the coming weeks. Funds are bullish the court will advance their claims because the deal isn’t insulated by a majority vote of minority shareholders even though it was negotiated with a special committee of Endeavor’s independent directors.
In the take-private, Endeavor executives Ari Emanuel and Patrick Whitesell saw nine-figure cash payouts. Silver Lake and Endeavor declined to comment..
