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Golden Nugget Online Gaming (GNOG) may or may not be worth more than the value of the DraftKings stock the latter company has agreed to pay for it. At the time, the deal was worth an estimated $1.56 billion, though DraftKings stock has declined in price since then.
GNOG shareholder Peter Wong says he and other minority investors have no way of knowing if the deal is fair, because GNOG didn’t pursue the all-shares transaction correctly. Wong is trying to stop the transaction with a lawsuit he filed on Nov. 11 with the US District Court for the Southern District of New York.
As the plaintiff, Wong contends that because the proposed transaction doesn’t contain enough information, he doesn’t know whether he needs to have his stock appraised or accept it as-is. He has demanded a jury trial in his efforts to stop the companies from completing the transaction.
The defendants in the case are GNOG and its board of directors. Wong contends that they’re selling GNOG to DraftKings “for an unfair price.” His reasoning is based on what he calls an “unfair process” alleged violations of the Securities and Exchange Act of 1934 by company leadership.
Congress updated that 367-page act this year. The Act regulates securities transactions on the secondary market, as well as the financial reports that public companies need to file.
Wong’s complaint lays out his argument in four parts. First, it claims that DraftKings acquiring GNOG was “a foregone conclusion,” because GNOG CEO and Board Chairman Tilman J. Fertitta owns 79.9% of the stock and had already agreed to the deal. Meanwhile, GNOG only considered two other suitors, according to Wong.
Secondly, it asserts that the board didn’t use an independent committee to oversee the merger. Members of the committee serve or are expected to serve on boards controlled by Fertitta “and his affiliates,” it says.
Next, Wong alleges the board considered its own self-interest in receiving special considerations, like the ability to exchange company equity awards for merger consideration. Wong claims that led the board “to procure for itself and senior management of the company significant and immediate benefits, with no thought to plaintiff,” among other shareholders. The lawsuit claims there will be “significant” golden parachutes for GNOG directors and officers, including more than $7.6 million for Fertitta and nearly $19 million for GNOG President Thomas Winter.
Finally, Wong contends that the registration statement for the proposed transaction “omits and/or misrepresents material information.”
Here’s what Wong alleges in the lawsuit is missing from or misrepresented in the registration statement:
In mid-September, DraftKings pursued an even bigger acquisition target: Entain. That company is best known in the US online gambling industry for being part-owner of iGaming market leader BetMGM. Entain formed that brand through a joint venture with MGM Resorts International.
DraftKings eventually gave up on that $22 billion acquisition bid, despite receiving a deadline extension from Entain.
DraftKings stock originally jumped nearly $14 to around $64 a share after news broke about its GNOG plans. However, it sustained even greater losses amidst the discussions of a potential Entain takeover. At the close of trading on Monday, its price had plummeted to $39.36.
Similarly, GNOG traded at about $12 before news of the DraftKings acquisition plans, then almost doubled in value to nearly $23. However, after the Entain news, GNOG fell to $18. On Monday, the stock closed at $14.24, nearly back to where it started.
In early August, at least two law firms sought GNOG shareholder plaintiffs for possible class action lawsuits regarding the DraftKings bid. Andrews and Springer of Wilmington, Del., put out a press release on Aug. 11 and Kaskela Law of Philadelphia did so on Sept. 25.
Wong is represented by Brodsky and Smith of Mineola, New York.
Wong’s lawsuit alleges:
“While the merger is not in the best interest of Golden Nugget stakeholders, it will produce lucrative benefits for the company’s officers and directors, and especially for controlling stockholder – Fertitta.