Golden Nugget shareholders take aim at Tilman Fertitta in new lawsuits
Two separate complaints ask for access to sealed documents in DraftKings’ GNOG acquisition discussions over “conflicted” board claims
The behind-the-scenes legal row concerning the acquisition of Golden Nugget Online Gaming (GNOG) in a deal worth $1.56bn at the time has taken another twist with the filing of two new lawsuits targeting GNOG owner Tilman Fertitta.
In a pair of complaints in the Delaware Court of Chancery, two GNOG shareholders have asked for documentation needed to examine alleged “wrongdoing” in the deal involving the GNOG chairman and CEO.
The suits allege Fertitta, who owns 79% of GNOG, agreed to financial and commercial terms which unfairly benefitted him and his holdings, as well as several GNOG board members who held influence over the acquisition proceedings.
Plaintiffs have questioned the implied per share value of the deal, which some industry insiders have suggested was inadequate in comparison to the potential future share value of the business.
GNOG minority shareholders Steven Eschbach and Anthony Franchi launched one lawsuit under Delaware’s General Corporation Law, later being joined by investor Carl Grove, who filed his own lawsuit against the firm.
The suits have requested access to a number of documents, including financial statements, company minutes, projections, fairness opinions, and documents regarding the independence of or conflicts involving directors and advisers, as well as several other pieces of information.
“Plaintiffs have a more-than-credible basis to suspect wrongdoing in connection with the transaction, which was entered into at an unfair price that DraftKings’ CEO publicly described as a ‘steal’,” the Eschbach and Franchi complaint said.
Allegations of wrongdoing were echoed by Grove in his own complaint against GNOG, with Grove suggesting there were “serious concerns” as to the impartiality of GNOG’s legal advisers on the deal, Jefferies LLC.
“The board that approved the merger and related side deals was conflicted, with at least four of the six members having extensive personal and business ties with Fertitta,” Grove’s complaint said.
“And the board was advised by Jefferies LLC, a joint venturer in other Fertitta-controlled entities and prior lender to Fertitta,” the complaint adds.
Under the terms of the deal, which has still to be approved, GNOG shareholders will receive a fixed ratio of 0.365 shares of class A common stock in DraftKings for each commonly held share in GNOG.
In addition, Fertitta agreed to hold onto all DraftKings shares issued to him as part of the deal for a minimum of one year.
Fertitta, who also owns NBA franchise the Houston Rockets, has agreed to join DraftKings’ board of directors as a part of the transaction. He will become one of DraftKings’ largest shareholders.
In pointed comments aimed at GNOG’s board of directors, the Eschbach-Franchi suit alleges that despite the inherent conflict of interest relating to the transaction, it failed to impose “basic procedural safeguards” designed to protect shareholder interests.
“The board formed a conflicted special committee at the 11th hour that failed to hire independent legal counsel and chose a financial advisor that was concurrently representing Fertitta in other matters and had been doing so for several years,” the Eschbach-Franchi suit adds.
In addition, the shareholders claim requests for access to documents and financial records relating to the business and the transaction were not adequately addressed by GNOG.
DraftKings also entered into an exclusive commercial agreement with Fertitta Entertainment Inc. as part of the deal.
The firm serves as the parent company of Golden Nugget, which owns land-based casinos, as well as Landry’s LLC, which serves as the umbrella brand for a US restaurant chain.
DraftKings’ agreement will see the Boston-based operator benefit from reduced market-access rates through preferred pricing at Golden Nugget-owned properties and an exclusive commercial deal across DFS, sportsbook, and igaming with the Rockets.
In addition, DraftKings will also become the exclusive DFS, sports betting, and igaming partner of the team with intent to open a sportsbook at the Toyota Centre, pending state legalization and regulatory approvals.
Expanding on this agreement, the Grove complaint questions the potential conflict arising from the “unique benefits” given as part of the commercial deal, benefits which would not be shared by GNOG’s other stockholders.
The lawsuits represent the second major challenge against GNOG’s board specifically in relation to the acquisition.
In August, Pennsylvania legal firms Brodsky & Smith and Rigrodsky Law began an investigation into GNOG for “possible breaches of fiduciary duty and other violations of federal and state law”, a case which is still currently pending.
The prior suit echoes many of the allegations of unfairness in respect of the multi-billion-dollar deal.
DraftKings is also facing its own legal headaches, with multiple lawsuits currently ongoing and the prospect of an SEC review in the firm’s immediate future.