Key Takeaways
- • Endeavor Group Holdings, taken private by Silver Lake in a $25 billion buyout at $27.50 per share, has sued Icahn Enterprises and hedge fund Troluce Capital Advisors in federal court in New York, seeking disgorgement of profits from their post-announcement arbitrage positions.
- • Endeavor alleges Icahn Enterprises and Troluce coordinated trading and together acquired more than 20% of the company, with close to $1 billion committed to challenging the deal, according to Hedgeweek's account of the complaint.
- • The complaint cites violations of the short-swing profit rule and disclosure requirements for large share purchases, and says Icahn Enterprises bought 27.4 million Endeavor shares over three weeks.
- • The federal suit runs alongside Delaware proceedings in which Icahn and other investors pursue fiduciary duty and appraisal claims, and Endeavor and Silver Lake seek to bar post-announcement buyers from those claims.
- • If the federal claims succeed, event-driven and merger arbitrage managers would face a new risk to appraisal arbitrage, a strategy that depends on building sizable post-announcement positions.
Summary
Endeavor Group Holdings has asked a federal court in New York to order Icahn Enterprises and hedge fund Troluce Capital Advisors to surrender any profits from the arbitrage positions they built to challenge its buyout by Silver Lake, Bloomberg Law reported. Silver Lake agreed to acquire Endeavor for $27.50 per share in a transaction valued at $25 billion.
The lawsuit targets a familiar event-driven strategy in which investors buy shares of a takeover target after a deal is announced and then use litigation to seek a higher price. Endeavor alleges that Icahn Enterprises and Troluce coordinated their trading and together acquired more than 20% of the company, with close to $1 billion committed to the challenge, according to Hedgeweek's account of the complaint. The complaint says Icahn Enterprises bought 27.4 million Endeavor shares over a three-week period.
Endeavor argues the investors violated federal securities rules, including the short-swing profit rule, which requires holders of more than 10% of a company to disgorge profits on certain trades made within six months, as well as disclosure requirements for large share purchases.
The federal case runs in parallel with proceedings in Delaware, where Icahn and other investors are pursuing fiduciary duty and appraisal claims over the buyout. Endeavor and Silver Lake have sought to bar shareholders who bought after the announcement from pursuing those claims, arguing the strategy exploits protections intended for longer-term holders.
For event-driven and merger arbitrage managers, the implications extend beyond this deal. If the federal claims succeed, they would add a new risk to appraisal arbitrage, a strategy that depends on investors being able to build sizable post-announcement positions and then press for a higher valuation in Delaware's courts.
The lawsuit targets a familiar event-driven strategy in which investors buy shares of a takeover target after a deal is announced and then use litigation to seek a higher price. Endeavor alleges that Icahn Enterprises and Troluce coordinated their trading and together acquired more than 20% of the company, with close to $1 billion committed to the challenge, according to Hedgeweek's account of the complaint. The complaint says Icahn Enterprises bought 27.4 million Endeavor shares over a three-week period.
Endeavor argues the investors violated federal securities rules, including the short-swing profit rule, which requires holders of more than 10% of a company to disgorge profits on certain trades made within six months, as well as disclosure requirements for large share purchases.
The federal case runs in parallel with proceedings in Delaware, where Icahn and other investors are pursuing fiduciary duty and appraisal claims over the buyout. Endeavor and Silver Lake have sought to bar shareholders who bought after the announcement from pursuing those claims, arguing the strategy exploits protections intended for longer-term holders.
For event-driven and merger arbitrage managers, the implications extend beyond this deal. If the federal claims succeed, they would add a new risk to appraisal arbitrage, a strategy that depends on investors being able to build sizable post-announcement positions and then press for a higher valuation in Delaware's courts.
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