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Analysis-Endeavor’s $13 Billion Deal Highlights Minority Shareholder Pushback

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Endeavor
FILE PHOTO: Trading information and logo for Endeavor Group Holdings, Inc. is displayed on a screen on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., May 10, 2023. REUTERS/Brendan McDermid/File Photo

(CTN News) – Latest example of controlling investors risking lawsuits to save a higher acquisition price: Endeavor Group rejected minority shareholders’ veto rights over a $13 billion agreement to take the entertainment behemoth private.

Investment bankers and corporate attorneys say a corporate governance safeguard that guarantees minority investors a fair price and protects stock market values from undervaluation is at risk.

Silver Lake, which owns 71% of Endeavor’s voting stock,

Led a group of investors that took the business private last month. The deal was signed without non-consortium investors’ approval.

A deal vote is official and does not require a “majority-of-the-minority-investors” condition because the controlling shareholders acquire the minority investors.

Sources told Reuters that Endeavor’s independent board of directors special committee failed to persuade Silver Lake to support a majority or minority shareholder vote.

Nearly a dozen attorneys and bankers told Reuters that controlling investors are realizing that denying minority shareholders a transaction veto is worth the legal risks.

“(Shareholder votes) allow a shareholder to say, “I know you are negotiating with the special committee, but now you are going to negotiate with me, and I am going to squeeze a second bite”, said Davis Polk M&A partner Phillip Mills.

Endeavor declined to comment on the purchase’s lack of shareholder approval.

Sterling Lake declined to comment. Hollywood power broker Ari Emanuel runs Endeavor, representing actors and actresses. Over 20 acquisitions have made it a sports and entertainment powerhouse.

In the last two years, majority shareholders took three U.S. corporations private without minority investor consent.

BDT Capital bought Weber for $3.7 billion last year and Thomas H. Lee bought Agiliti for $2.5 billion in February.

Investment bankers and experts believe that take-private offers that allow minority shareholder vetoes may lower valuations because investors will bet that the company will sell for less.

Risky settlement costs

Handelsbanken accused Endeavor of deceiving investors by not letting them vote on its low-priced deal.

Last week, Endeavor disclosed that several shareholders had requested internal deal negotiations reports.

Attorneys who advise businesses against allowing minority shareholders to vote on deals argue that Delaware court precedent states that the controlling shareholders would have to pay 5–10% of the sale price years after the transaction.

The lawyers say not voting speeds up a sale and discourages hostile shareholders like hedge funds from demanding greater bids.

“Controllers who take publicly traded companies private often conclude that no majority of minority-held shares is needed to be fair to minority shareholders. In lieu of minority shareholder approval, majority shareholders often assume implementation risk. Freshfields Bruckhaus Deringer’s U.S. corporate and M&A joint head is Ethan Klings berg.

Klingsberg denied involvement in the deal, but Freshfields advised Endeavor chairman Patrick White sell.

However, some managed corporations allow minority shareholders to reject insider trades to reduce lawsuit risk. Squarespace announced on Monday that its minority shareholders would vote on the $6.9 billion sale to Permira and its main investors, including General Atlantic, Accel, and CEO Anthony Casalena.

Silver Lake handles money-seeking investors. After Michael Dell’s computer company was privatized for $24.4 billion in 2013, minority shareholders gained voting rights.

Carl Icahn and other activist investors wanted $350 million from the private equity company to complete the deal.

“A vote may make the transaction unpredictable but may help with business judgment. Milbank M&A partner Iliana Ongun says merger arbs and other parties buy stock after a transaction is reported, so special meeting voters may not be long-term owners.

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Salman Ahmad is a seasoned writer for CTN News, bringing a wealth of experience and expertise to the platform. With a knack for concise yet impactful storytelling, he crafts articles that captivate readers and provide valuable insights. Ahmad's writing style strikes a balance between casual and professional, making complex topics accessible without compromising depth.

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