Corporate Governance Structure Benefits Emanuel/Whitesell/Silver Lake to Detriment of Investors; Impedes Independent Oversight
Note Council of Institutional Investors’ Letter to Endeavor
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Hollywood – Writers Guild of America West today issued a second “Investor Alert” in advance of Endeavor’s IPO. The Guild warned that the new public company’s corporate governance structure dramatically favors company insiders including top executives Ari Emanuel and Patrick Whitesell and restricts public investors’ ability to exercise meaningful oversight. “The potential for conflicts of interest with public investors echoes current practices in Endeavor’s representation business that have enriched the agency at the expense of its clients, and that recently caused 1400 writer-clients to walk away from the firm,” said WGA West Director of Research Laura Blum-Smith.
See investor alert here.
“Endeavor’s dual-class stock structure gives CEO Ariel Emanuel, Executive Chairman Patrick Whitesell, and affiliates of private equity owner Silver Lake control of most of the company’s non-traded Class Y shares, which carry 20 votes compared to the single-vote public Class A shares. ... The company admits that this concentrated control of voting shares may prevent ownership changes ‘even if such events are in the best interests of minority stockholders,’” the Investor Alert states. “Endeavor’s dual-class structure will likely disqualify it from inclusion in FTSE Russell and S&P Dow Jones indices, which Endeavor notes could adversely affect the market price of its Class A common stock.”
Concerns regarding the misalignment of Endeavor’s ownership and control from this concentrated voting stock are echoed in this letter to Endeavor from the non-profit Council of Institutional Investors, whose pension fund, endowment, asset management and other members manage $40 trillion in assets: https://bit.ly/2M300iy
Endeavor’s structure also includes “poison pills” designed to give company insiders indefinite control. “These provisions are particularly concerning as the company concedes that its top executives may have conflicts of interest with public investors, noting ‘Messrs. Emanuel’s and Whitesell’s, Executive Holdco’s and the Silver Lake Equityholders’ interests may not be fully aligned with yours, which could lead to actions that are not in your best interest. Because [those individuals and entities] hold part of their economic interest in our business through Endeavor Operating Company, rather than through the public company, they may have conflicting interests with holders of shares of our Class A common stock,’” the Investor Alert states. “This is not a theoretical concern as Endeavor’s conflicts of interest with its clients are currently having an impact on the company’s representation segment, where it has lost 1400 writer-clients since April.”