Activist investor Carl Icahn and a coalition of hedge funds are embroiled in a legal battle with private equity firm Silver Lake over its $13 billion take-private deal for Endeavor Group Holdings Inc., the parent company of WWE and UFC. The hedge funds allege that Silver Lake's offer of $27.50 per share significantly undervalued Endeavor, especially considering the substantial increase in the stock price of TKO Group Holdings, a majority-owned Endeavor asset, since the deal's announcement in April 2024.
Icahn, whose firm, Icahn Enterprises, along with a Swedish bank, Handelsbanken Fonder AB, won the lead role in a class-action lawsuit, holds a substantial stake in Endeavor, totaling $757 million at the deal price. They contend that Endeavor executives, including CEO Ari Emanuel, breached their fiduciary duties to shareholders by agreeing to an unfair deal that provided lucrative payouts to insiders. Silver Lake, which already held a 71% voting stake in Endeavor and has a long-standing relationship with the company, has maintained that the acquisition price is fair and has publicly warned against arbitrage investors who accumulated positions after the deal was announced to demand appraisal rights.
These dissenting shareholders are utilizing "appraisal rights," a legal process in Delaware Chancery Court that allows dissatisfied investors to seek a reassessment of the fair value of their shares. They are arguing that the court should consider Endeavor's value at the time of the deal's close, rather than when the acquisition was announced, to account for TKO's surge in value. Funds collectively holding over $1 billion in Endeavor stock have joined this litigation. The appraisal process allows for interest at a rate of five percent above the Federal Reserve interest rate, potentially amounting to around nine percent from the deal's close until the court's decision. Additionally, several lawsuits alleging breaches of fiduciary duty against Endeavor executives are anticipated.
Silver Lake and Endeavor have been accused by the challengers of "stonewalling" efforts to resolve administrative matters in the court challenge, leading to calls for a mediator. Silver Lake, in a pre-close announcement, stated that the acquisition price was "fair" and that it did not intend to increase it, viewing the arbitrage trading as having artificially inflated Endeavor's stock price. However, critics like Roy Behren of Westchester Capital Management, dismissed this as a "scare tactic" and affirmed their commitment to pursuing appraisal rights due to the perceived unfairness of the deal price to minority shareholders. The dispute highlights a growing trend of hedge funds engaging in merger arbitrage to force higher payouts in take-private transactions.
