Papers filed in New York
Wealthy investors ‘rigged’ Fanduel sale to cut out founders
Nigel and Lesley Eccles: two of the founders (pic: Terry Murden)
Wealthy corporate investors have been accused of rigging the merger of fantasy sports firm Fanduel with Paddy Power Betfair to ensure they shared billions of dollars while the founders and original investors were left with nothing.
The claim appears in legal papers filed against private equity firms Shamrock Capital Advisors and KKR & Co claiming they colluded to wipe out common shareholders and “enrich themselves”.
FanDuel was launched by four friends at Edinburgh university – husband and wife Nigel and Lesley Eccles, Tom Griffiths and Rob Jones – before it moved to New York and became one of the market leaders in the booming sports games sector.
But following a series expensive legal battles with the US authorities over anti-gambling legislation they were forced to sell the business.
The buyers sold the business to the betting giant Paddy Power Betfair and the complaint filed in the Supreme Court of New York, alleges those who invested and the board they installed “engaged in self-dealing on a grand scale by rigging the merger”.
Under the merger terms the preferred shareholders were entitled to the first $559 million in proceeds from the merger. Common shareholders, like the founders and former employees, were entitled to everything above that amount.
But the defendants are accused of undervaluing the shares , selling the business for $465m which meant the common shareholders received nothing.
The plaintiffs are now seeking $120 million from the renamed Flutter Entertainment.
The law suit claims investors and and the board did not get an independent valuation of the shares FanDuel received in the newly-merged company. They did not put the merger to a shareholder vote and they withheld key documents from common shareholders.
“This is because they didn’t want anything to stand in the way of their illicit scheme. An independent valuation would have valued the shares at significantly more than $559 million and cost the defendants the billions they secured for themselves at the expense of the employees who built the company,” according to the plaintiffs.
Mr Eccles said: “Put simply these investors and the board cheated FanDuel employees to give themselves a massive payday.
“They failed to ask for an independent valuation, failed to hold a shareholder vote and then hid documents from employees and other investors to cover up their misdeeds. Their self-dealing fails any basic fiduciary or moral standard.”
The lawsuit aims to demonstrate how the defendants’ actions were a clear breach of their fiduciary duties, which cost hardworking employees and the founders hundreds of millions of dollars’ worth of shares in the new FanDuel Group which has more than $285 million in revenues and more than 50% year-over-year growth.