Endeavor’s Take-Private Sparks Hedge Fund Face-Off With Silver Lake Over Buyout Price

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Just last month, just prior to Silver Lake finalizing its $25 billion buyout to privatize Endeavor, it was revealed that Carl Icahn had significantly invested in the company.

At first glance, this purchase seemed uncommon. For the better part of a year, Endeavor’s shares had consistently traded above the $27.50 per share that shareholders were due as part of the agreement. However, he noticed a strategy that some hedge funds have been adopting lately – a kind of merger arbitrage. This tactic could potentially compel Silver Lake to boost its payout to investors.

As a passionate follower of financial news, I’ve learned that several investment funds, including myself, have filed petitions with the Delaware Chancery Court to reevaluate our shares in TKO Group Holdings. Last Thursday, four funds, along with at least eight others such as Fifth Lane Partners Fund and North Commerce Parkway Capital, HBK Capital Management Group LP affiliates, and UBS Group AG, filed their petitions. This move is based on the significant increase in the value of TKO Group Holdings stock since the deal was announced in April 2024. The parent company of WWE and UFC, Endeavor, owns a majority stake in this company. We’re hoping that our petition will lead to a higher payout than what’s currently proposed because there are concerns that the purchase may undervalue TKO Group Holdings.

A significant number of investment funds, which collectively own over a billion dollars worth of Endeavor stock, have become involved in ongoing litigation. They are utilizing a legal process called “appraisal rights,” where investors who are unhappy can request a reevaluation of the fair market value of their shares. Furthermore, more petitions and lawsuits claiming breaches of fiduciary duty against Endeavor’s top executives like Ari Emanuel and Patrick Whitesell, on behalf of shareholders owning tens of millions of shares, are anticipated to be submitted in the upcoming weeks, according to sources familiar with the matter, as reported by The Hollywood Reporter.

In an unexpected statement made on March 3 before the finalization of the deal, Silver Lake stated that the purchase price is considered “fair” and they have no intention of raising it. The company also noted that there have been reports in the media about significant shareholders engaging in arbitrage with the deal, aiming to request appraisal. Silver Lake further expressed concern that excessive trading by these hedge funds, who amassed substantial shares in Endeavor’s stock following the deal announcement, has artificially inflated the stock price.

Last month, Roy Behren, co-chief investment officer at Westchester Capital Management, told Bloomberg that the announcement appears to be a tactic meant to intimidate inexperienced or vulnerable investors. “We’re ready to use our right to reevaluate the value of our investments for our clients,” he said, “and we will persist with this action as needed, since we find the proposed deal price to be extremely unfair to minority shareholders.

During the evaluation phase, the court will take into account the worth of Endeavor once the transaction is finalized, not just when Silver Lake first announced the deal. Among other factors, it’s worth noting that while WME is Endeavor’s primary asset, TKO is one of its highly valued possessions. In fact, Endeavor controls approximately 59% of all TKO shares. The investors are contending that they deserve a larger compensation, as the deal doesn’t seem to factor in the significant increase in TKO’s value – which has reached an unprecedented high over the past year.

According to Silver Lake’s viewpoint, they believe it’s unfair to be charged extra when investors artificially inflate the stock price in order to make appraisal demands.

The law regulating appraisal value is extensive, instructing courts to examine all pertinent factors when deciding fair value. This flexibility might work to the advantage of investors. Before the agreement, Silver Lake controlled 71% of Endeavor’s voting rights, with Egon Durban and Stephen Evans sitting on the executive committee. There’s no evidence suggesting they considered offers from external parties regarding Endeavor. The public shareholders had no input in this decision. Although such a vote isn’t mandatory, some corporations choose to conduct one, as Charter did when announcing its deal to acquire Liberty Broadband last year through a stock transaction.

In appraisal proceedings, there’s no motion practice, which means litigation can’t be terminated through dismissal or summary judgment. Instead, a fair value hearing is held. Shareholders participating in the process are entitled to an interest of 5% above the Federal Reserve rate, approximately 9%, from the date the deal was finalized until the court’s decision. However, companies have the option to prepay to avoid accruing additional interest.

The deadline to submit requests to exercise appraisal rights was Feb. 4.

In addition, there are anticipated lawsuits regarding breach of fiduciary duty that will be filed in the near future. Confidently, they believe the court will support their case as the deal does not have protection from a majority vote by minority shareholders, despite being negotiated with an independent board committee from Endeavor.

In the process known as “cashing out,” Ari Emanuel and Patrick Whitesell from Endeavor received substantial payouts amounting to over one hundred million dollars each.

Silver Lake and Endeavor declined to comment.

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2025-04-04 02:24