Standard General Faces Miami Pension Fund Lawsuit Amid High-Stakes Casino Acquisition of Bally’s

The legal battle surrounding the Miami Police Relief and Pension Fund has intensified as they take action against Standard General, labeling the firm a “vulture fund” due to their aggressive tactics. At the heart of the dispute is a contentious casino acquisition involving Bally’s, where the pension fund alleges that the offer was structured to the detriment of many long-term investors. By accusing larger shareholders of assisting Soo Kim in this hostile move, the fund contends that the strategic nature of the casino acquisition was designed to benefit a select few at the expense of broader stakeholder stability.

Pension investor labels Bally’s owner as a “vulture fund”
Claims Standard General’s offer was “coercive”
Alleges Sinclair Broadcasting assisted Kim’s hedge fund

The lawsuit, lodged in Delaware’s Court of Chancery, names Soo Kim, Bally’s CEO Robeson Reeves, and President George Papanier among others. In March 2024, Standard General proposed an acquisition of $15 per share, later increasing it to $18.25, which Bally’s board accepted. This deal came 26 months after a failed attempt in January 2022 when the hedge fund offered $38 per share. The Miami fund is dissatisfied with how negotiations unfolded.

In a summary of their accusations, the Miami Pension Fund stated, “The standard ‘vulture fund’ business model meant that Kim and Standard General struggled to adequately finance the transaction, thus imposing a coercive agreement structure that undervalued Bally’s and shortchanged minority shareholders.” The transaction, valued at $4.6 billion, was finalized in February.

Involvement of Sinclair Broadcasting

The Miami pension plan notably mentions Sinclair Broadcasting, claiming the company facilitated Standard General’s efforts to increase control over Bally’s shares, forcing the casino operator to accept an undervalued acquisition offer. Sinclair reportedly acquired an equity stake in Bally’s in late 2020, when both companies struck a deal estimated at $85 million over a ten-year period, allowing Bally’s to apply its name to Sinclair’s regional sports networks. Although those networks are currently branded as FanDuel, Sinclair retains its investment in Bally’s.

According to the lawsuit, “Together, Kim, Standard General, Noel Hayden, and Sinclair (collectively referred to as the ‘Control Group’) held 53% of the fully diluted shares of the Company before the Transaction and 48.3% of the fully diluted shares of the Company, excluding out-of-the-money options owned by Sinclair. Without their previous agreement to renew participation with Standard General, this Transaction would not have occurred since Standard General lacked sufficient funds to close it.”

Hayden, founder of Gamesys, was involved in the $2.7 billion acquisition of the interactive gaming company by Bally’s in March 2021, making him a significant shareholder in the casino operator.

Trading Strategy and Debt Financing

The Miami Pension Fund claims that the next step in Kim’s strategy involved injecting debt into Bally’s using its revolving line of credit. They claim, “Kim demanded that Bally’s provide additional funding by issuing massive debt against its own line of credit. The availability of those funds forced Bally’s to pay off its credit line with cash from freshly executed transactions, leading to excessive debt and reduced value for the company post-transaction.”

Special Committee Conflict

In March 2024, Bally’s established a special committee to evaluate Standard General’s offer. Such committees are expected to operate independently, but the Miami pension fund argues that Bally’s committee lacked true independence. The fund claims that the committee members had strong connections with Kim and were offered lucrative job proposals, special payments, and promises of shares in the new equity. These incentives allegedly skewed the outcome in favour of Standard General.

Despite having limited options, the committee reportedly failed to utilize its influence to attract alternative bidders. Upon the disclosure of Standard General’s offer, analysts speculated that Bally’s would struggle to attract further bids due to ongoing issues, including regulatory troubles in the UK and disappointing performance in its digital division in North America.

The lawsuit outlines several alleged failures of the committee, including:

Refusing to pursue unsolicited incoming bidders at the start of the sale process.
Rejecting bondholders’ offers to waive change of control clauses to align transaction costs for the Control Group and competing bidders.
Carrying out a delayed and limited market check before sabotaging commitments to alternative purchasers.
Allowing a conflicted director, Jaymin Patel, to engage directly with Kim while abandoning his duty to advance the process.

As part of the lawsuit, Patels’ implicated role as a defendant is highlighted, along with claims that the committee failed in its fiduciary responsibility, omitting key details regarding its close ties with Kim.

This case highlights the complexities involved in high-stakes casino acquisitions while raising questions about fiduciary duties and transparency in corporate governance.

Summary

The lawsuit from the Miami Police Relief and Pension Fund against Standard General highlights serious allegations regarding coercive tactics employed during Bally’s acquisition process. It underscores potential improprieties involving Sinclair Broadcasting and the conflicts within the committee set to evaluate the offer. Investors and stakeholders eagerly await the outcome of this high-profile case, which may set precedents for future acquisitions in the casino industry.