A Delaware courtroom may decide whether post-deal investors can turn a major takeover into a much larger payout, with hundreds of millions at stake.
Investment firm Silver Lake has sued billionaire Carl Icahn and dozens of hedge funds, seeking to block their claims for a review of Endeavor’s share value following its buyout in 2025.
Based on data from Reuters
Silver Lake Technology Management asked the Delaware Court of Chancery to declare that the hedge funds cannot seek a judicial appraisal of Endeavor shares purchased after the deal was announced.
In 2024, Silver Lake announced plans to acquire Endeavor for $13 billion, or $27.50 per share. The hedge funds bought shares in the company after the deal was announced, and some of them, according to the lawsuit, paid even more than the offered price.
What is a judicial appraisal of shares?
Delaware corporate law allows investors who believe the price of a merger or acquisition is too low to ask a court to determine the fair value of their shares. The process differs from a class-action lawsuit and applies only to the shares held by the specific plaintiffs.
The court considers evidence from both sides regarding the company’s value and may set a price either higher or lower than the amount specified in the deal. If the investors prevail, Silver Lake could potentially have to pay hundreds of millions of dollars more.
Endeavor became an attractive target for funds pursuing an appraisal-arbitrage strategy. They buy shares after a deal is announced and then seek through the courts to obtain a payment higher than the acquisition price.
They are not dissenting shareholders; they are speculators acting solely for the sake of arbitrage profits.
– Silver Lake’s complaint states
At the same time, the Delaware Court of Chancery has previously recognized that investors who purchased shares after a deal was announced may file appraisal actions.
Carl Icahn’s separate lawsuit
Carl Icahn did not file an appraisal action. Instead, he brought a separate class-action lawsuit accusing Endeavor’s management and Silver Lake of breaching their fiduciary duties to investors. He alleges that the company’s assets were used to benefit insiders.
Silver Lake also claimed that Icahn coordinated with hedge funds to buy Endeavor shares. The lawsuit states that Icahn and the funds deny this allegation. In addition, the company accused some funds of failing to properly disclose information about their share purchases.
Lawyers for the hedge funds and representatives of the class-action plaintiffs declined to comment.
Changes to Delaware law
Last year, Delaware lawmakers amended the state’s corporate law. The changes made it more difficult to bring lawsuits involving deals with large or controlling shareholders and limited access to corporate records for investigating potential conflicts of interest.
State lawyers said that the number of appraisal actions had increased since the changes were introduced. This may indicate either that investors believe deal prices are undervalued or that traditional fiduciary-duty lawsuits have become more difficult to pursue.
Such cases may also provide an easier way to gain access to confidential corporate documents. The Delaware court must decide whether the hedge funds can seek an appraisal of Endeavor shares as part of the deal with Silver Lake.