Silver Lake sues Carl Icahn and hedge funds over Endeavor buyout

By Tom Hals

WILMINGTON, Delaware, Sept 21 (Reuters) - Private equity firm Silver Lake sued billionaire Carl Icahn and dozens of hedge funds on Monday to block their use of an obscure legal tactic to chase a potentially big payday from the company over its 2025 acquisition of the Endeavor entertainment agency.

Silver Lake Technology Management LLC sought a ruling from Delaware's Court of Chancery declaring that hedge funds could not seek "appraisal" for Endeavor stock they scooped up after Silver Lake announced in 2024 it would buy the company for $13 billion, or $27.50 per share.

Delaware corporate law allows investors unhappy with a merger to sue over allegations the deal was underpriced, bringing what is known as an appraisal action.

The ruling being sought would potentially protect Silver Lake from paying out hundreds of millions of dollars, or more, on its Endeavor deal.

Unlike a class action, the lawsuit only pertains to the plaintiff investors' stock. After considering each side's valuation evidence a judge determines the stock's fair value, which can be appraised above or below the deal value.

An attorney for the hedge funds declined to comment.

Endeavor became a particularly attractive bet for hedge funds using a specialized investment strategy known as appraisal arbitrage.

The company owned a majority stake in TKO Group Holdings TKO.N, which counted among its assets World Wrestling Entertainment and Ultimate Fighting Championship.

After the Endeavor deal was announced, TKO stock rose sharply, and appraisal-focused hedge funds began scooping up Endeavor stock, even chasing it above the deal price, according to the lawsuit.

Silver Lake said the hedge funds were twisting the legal system for profit. "They are not dissenters; they are opportunistic arbitrageurs," the lawsuit said.

Despite Silver Lake's argument, the Court of Chancery has held that investors who purchased shares after a deal announcement have a right to bring an appraisal case.

Icahn did not bring an appraisal case but filed a separate class action lawsuit alleging the management and Silver Lake breached their fiduciary duties to investors and took Endeavor's assets to benefit insiders.

An attorney for the class declined to comment.

Silver Lake accused Icahn of coordinating with the appraisal hedge funds to purchase Endeavor stock, which the lawsuit said Icahn and the funds have denied. The lawsuit also accused some funds of failing to make proper securities disclosures of their Endeavor stock purchases.

Last year, Delaware's lawmakers amended its corporate law to make it harder to sue over deals involving large or controlling shareholders and made it harder to obtain corporate documents to investigate a deal for conflicts of interest.

Delaware lawyers said that since the law changed, there has been an increase in appraisal cases, which could be because investors believe deals are undervalued or because traditional fiduciary duty lawsuits are harder to bring. Appraisal cases also can be an easier route to getting access to confidential corporate documents.