London-listed Entain finds itself entangled in a major legal battle, partially a result of the style of risk management and governance protocols of the previous administration.
A group of institutional investors has filed a ￡150 million lawsuit against the company, seeking compensation for a decline in its share price following an investigation into alleged bribery at its former Turkish subsidiary. The identity of the shareholders who are suing Entain has yet to be disclosed. People with knowledge of the claim said they were mostly US-based, with some in the UK and other countries, and included public pension funds and asset managers. The announcement had an immediate and profound impact on Entain’s stock, triggering a significant drop in share value. Over the past year, Entain’s shares have plummeted by 44 percent. This decline is attributed to multiple factors, including a series of costly acquisitions that showcased the company’s voracious appetite for mergers and acquisitions when Jette Nygaard-Andersen was at the helm.
The group claim currently includes 20 institutional investors, but discussions are ongoing to potentially add more participants. The company’s recent history has been marred by allegations of bribery at its former Turkish subsidiary, leading to a deferred prosecution agreement and a substantial fine. This scandal, coupled with a series of costly acquisitions, has eroded investor confidence and left the company vulnerable to takeover attempts. Newly appointed CEO Gavin Isaacs must not only address these legacy issues but also chart a path forward that restores investor trust and positions Entain for sustainable growth.
These legal troubles for Entain began to surface in November when the company entered into a deferred prosecution agreement (DPA) with the Crown Prosecution Service (CPS), in collaboration with HM Revenue and Customs (HMRC). This agreement marked a historic moment as it was the first DPA conducted outside the Serious Fraud Office. Under the terms of the DPA, Entain agreed to pay a substantial fine of ￡585 million.
The investigation by HMRC focused on activities related to Entain’s Turkish-facing business, which the company had already sold in 2017.
In June, the formidable team at law firm Fox Williams issued a call to action, inviting institutional investors to join a group claim against Entain. The claim period for investors was defined as spanning from 1 July 2011 to 31 December 2023. Led by securities litigation partners Andrew Hill (pictured above on the right) and Matthew Reach (pictured above on the left), Fox Williams initially planned to file the group action by Autumn 2024. However, the claim was filed earlier than anticipated, with the group action being submitted to the Financial List of the High Court on 2 August.
The lawsuit is being pursued under the Financial Services and Markets Act 2000, with the total claim amounting to over ￡150 million. Entain has enlisted the services of the prestigious law firm Slaughter and May to defend against these legal proceedings.
Long-term implications for Entain
In an effort to restore investor confidence, Entain named industry veteran Gavin Isaacs as chief executive last month. His predecessor, Jette Nygaard-Andersen, stepped down in December. Isaacs’ leadership will be crucial as the company addresses this difficult period and seeks to rebuild its reputation.
The first question on everyone’s mind today is whether Entain is heading for a merger or a hostile takeover. With one saga after another, the new CEO faces an almost insurmountable task—one he was fully aware of when he accepted the role. Filling the CEO position at Entain was no easy feat. Earlier this year, numerous seasoned and experienced leaders turned down the offer, leaving Stella David to bravely steer the ship as interim CEO during the search. While David proved to be a reliable leader, this was not a role she had planned to take on permanently.
Now, Isaacs must steer through the turbulent waters and fend off any potential hostile bidders. Adding to his challenges are the activist investors who have been vocal about their dissatisfaction with the company’s governance over the past year. These investors have been relentless in their calls for change, further complicating Isaacs’ already daunting task. Isaacs’ appointment comes at a critical juncture for Entain. The company has been plagued by a series of controversies and financial setbacks, including a significant drop in share value and costly acquisitions. The activist investors, led by prominent figures such as Eminence Capital, have been particularly critical of the previous administration’s handling of these issues. They have been pushing for greater transparency and accountability, and their pressure has only intensified with Isaacs’ arrival.
Stella David, who stepped in as interim CEO, provided much-needed stability during a period of uncertainty. Her leadership was instrumental in maintaining operational continuity and investor confidence. David’s efforts were commendable, but the task of steering Entain through its current challenges now falls squarely on Isaacs’ shoulders.
Aftermath of past missteps
Isaacs brings a wealth of experience to the role, having previously led major gaming companies through periods of transformation and growth. His track record includes successful stints at Scientific Games Corporation and SBTech, where he demonstrated his ability to drive strategic initiatives and deliver results. However, the challenges he faces at Entain, even for him, are unprecedented.
One of the key challenges Isaacs has to address is to manage the expectations of activist investors. These investors have been vocal in their criticism of the company’s governance and have called for significant changes. Their influence cannot be underestimated, and Isaacs will need to engage with them constructively to address their concerns and secure their support.
In addition to dealing with activist investors, Isaacs must also fend off potential hostile bidders. The company’s weakened financial position and declining share price have made it an attractive target for takeover attempts. Isaacs will need to demonstrate strong leadership and strategic vision to convince investors that Entain can recover and thrive.
The outcome of this lawsuit could have far-reaching implications for Entain and the broader gambling industry in prioritising transparency and ethical conduct to maintain investor trust and avoid legal repercussions.
The company’s response to the lawsuit and its efforts to address the underlying issues will be closely scrutinised by investors, regulators, and the public.
The civil litigation against Entain comes after it struck a deal with prosecutors over alleged bribery at its former Turkish subsidiary, agreeing to pay ￡615 million to avoid a trial. Dame Victoria Sharp, one of England’s most senior judges, approved the deferred prosecution agreement in December, one of the largest such penalties issued against a UK company. UK authorities had accused Entain, which was previously named GVC Holdings, of failing to prevent bribery between July 2011 and December 2017.
Investors in the UK usually have difficulty in bringing successful claims against companies, including pinpointing individual executives who can be held responsible for failing to disclose the information that they seek. Several such claims have settled before trial, including one against outsourcing group Serco earlier this year. Serco said the settlement terms were “not material” to the company. Glencore, Barclays, and Standard Chartered are also facing legal claims from shareholders, but they deny the allegations against them.
Investors push for transparency
Andrew Hill from Fox Williams, commenting on the lawsuit, expressed satisfaction with the progress made, stating, “We’re pleased that we have successfully filed this claim on behalf of institutional investors. This action demonstrates that investors are seriously committed to ESG and will hold companies accountable when acting irresponsibly.”
Clearly nvestors are becoming increasingly vigilant about holding companies accountable for their actions, particularly in cases involving ethical breaches and misconduct.
Focus on questionable ethics and governance
Entain's expansion into international markets, including Turkey, was seen as a strategic move to diversify its revenue streams. However, the allegations of bribery and subsequent legal actions have raised questions about the company’s governance and ethical practices.
The outcome of this lawsuit will be closely watched by the investment community and could set a precedent for future cases involving corporate misconduct.
Alhtough the road ahead for Entain is fraught with challenges, the coming months will be critical as Isaacs works to rebuild trust, address legacy issues, and position Entain for a brighter future. By addressing the company’s governance issues, engaging with activist investors, and executing a clear strategic plan, new CEO Isaacs has the potential to turn Entain’s fortunes around to drive long-term value.
SiGMA News has reached out to Entain for comment.
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