Money Stuff: Who Cares If a Merger Is Fair?

Last March, Silver Lake, the private equity firm, bought out the minority shareholders of a company it controlled for less than their shares were worth. This wasn’t quite its fault.

Silver Lake was the controlling shareholder of Endeavor Group Holdings Inc., an entertainment conglomerate that grew out of Ari Emanuel’s talent agency. Endeavor went public in 2021, and starting in about 2023 Silver Lake considered taking it private again. In April 2024, Silver Lake and Endeavor agreed to a merger to cash out the minority public shareholders at $27.50 per share.  Endeavor’s shareholders had to approve the merger, but Silver Lake controlled 74% of the shares, so Endeavor didn’t bother asking other shareholders to vote. [1]  The deal closed last March, and the minority shareholders got $27.50 per share in cash, for a total equity value of about $13 billion.

Endeavor was (and still is) the controlling shareholder of another public company, TKO Group Holdings Inc., which runs the Ultimate Fighting Championship and World Wrestling Entertainment. When Endeavor’s board of directors approved the Silver Lake going-private transaction in April 2024, TKO had a market capitalization of about $14.8 billion, and Endeavor owned about 51% of it, or about $7.4 billion worth. So the TKO stake represented a bit more than half of the total value of Endeavor. [2]  

But when the going-private transaction closed, in March 2025, (1) TKO’s value had roughly doubled (to about $30.5 billion) and (2) Endeavor’s stake had increased (to about 61%). Endeavor’s stake in TKO was now worth about $18.6 billion, or more than the total amount that Silver Lake was paying for Endeavor’s stock. Silver Lake was buying out the minority shareholders for less than the value of their TKO stake, and getting the rest of Endeavor for free.

Again, not quite Silver Lake’s fault! Silver Lake agreed to the deal in April 2024, when TKO was worth less. It was on the hook to close the deal, and if the value of TKO had declined, Silver Lake was still committed to pay $27.50 per share for Endeavor. As it happens, the value of TKO ripped up, and Silver Lake ended up buying out the minority shareholders at a huge discount. (TKO has continued to go up, and its market capitalization today is about $36 billion.) 

“Ah well, that’s life; the minority shareholders agreed to the deal in April 2024, so they gave up the future upside in Endeavor and TKO,” you might say, but of course they didn’t agree to the deal. Silver Lake controlled Endeavor; it effectively negotiated against itself, and the shareholders got no vote. (Fine, a special committee of independent directors negotiated against Silver Lake on behalf of the Endeavor shareholders, but those shareholders got no chance to ratify its work.) 

If you were a minority shareholder of a public company, and the private equity firm that controlled that company took it private for less than its shares were worth, you might feel aggrieved. But what can you do about it? You can sue, claiming that Endeavor’s directors breached their fiduciary duties and that the deal was invalid. Maybe you’ll win; maybe they did breach their fiduciary duties; maybe Silver Lake came to them and said “hey we’d like to steal this company” and the board was like “sure how can we help.” But that seems unlikely. The story I have told is not really “Silver Lake wanted to steal the company, and the board let them.” The story I have told is “Silver Lake and the board agreed to a price they thought was fair based on the evidence at the time, but by the time the merger closed it kind of looked like a steal.”

Traditionally, though, there is something you can do about it. Delaware — where most US public companies, including Endeavor, are incorporated — has a process called “appraisal.” If you are a shareholder of a public company that is getting acquired for cash, you can decline the deal and go to court instead to demand the “fair value” of your shares. A judge will hold a trial, figure out what the company is worth, and make the acquirer pay you that fair value.

A lot of people find this annoying and antiquated. Really the market should determine how much a company is worth, not a judge with no skin in the game. There is some history of public companies conducting competitive merger auctions and selling themselves to the highest bidder at a significant premium to their public trading price, only to have a judge say “nah, you were worth more.” How does the judge know? It’s not her money.

Also there were some features of appraisal that made it, for a while, a no-lose proposition. You’d buy shares in a merger target, demand appraisal, and go to trial. Maybe you’d win, and the judge would award you more than the deal price: great. But even if you lost, you’d probably still get the deal price, and you’d get interest — from closing of the deal until the end of the trial — at an anomalously high rate. “It was a good steady fixed-income strategy with some big equity upside,” I wrote last year.

This eventually got too good to be true, and Delaware judges cracked down. These days, judges are much more likely to find that the fair value of a company was less than the merger price (typically its unaffected trading price before the merger news broke). The theory is that, in a reasonably efficient stock market, the trading price of a company’s stock is the best reflection of its fair value, and the merger premium reflects synergies that are not included in the appraisal fair value. Appraisal is no longer a no-lose proposition for shareholders, so it has become much less common.

But it’s still there, in the law, to protect minority shareholders. And Endeavor is kind of the perfect case for it:

1. It was a controlled company, Silver Lake negotiated against itself, and there was no market check on the fairness of the deal; and
2. Just by looking at the trading price of TKO in a reasonably efficient market, you can quite easily compute that the deal price was less than the fair value of the Endeavor shares. This case does not require a judge to make nuanced judgments about discounted cash flow modeling and substitute her valuation for the market’s. The market’s valuation (of TKO) tells you that Silver Lake underpaid (for Endeavor). [3]

And so, in fact, when the going-private deal was announced, and when TKO kept going up, hedge funds — “appraisal arbitrageurs” — bought up a lot of Endeavor stock and sued for appraisal. “It’s the biggest such appraisal effort ever in” Delaware, Bloomberg News reports, because it is the best. It’s just the simplest possible appraisal story: Silver Lake paid $27.50, objective market prices tell you that the value was higher, give us more.

We talked about the appraisal lawsuit a couple of times before. I have wondered what Silver Lake’s defense could be. Again: really not Silver Lake’s fault that it underpaid, really nothing nefarious about that, but it just plainly underpaid on the simplest objective evidence. Back in March 2025, Silver Lake’s rather far-fetched defense was that TKO’s stock price wasn’t real because hedge funds were manipulating it:

Silver Lake believes that the pervasive trading by these hedge funds, many of whom accumulated substantial positions in the stock of Endeavor (and presumably also its public subsidiary, TKO Group Holdings, Inc. (NYSE: TKO)) only after the deal was announced, has caused an artificial increase in the stock price. Appraisal entitles dissenters to the fair value of their Endeavor shares, not to amounts attributable to artificial inflation through arbitrage activity.

And, sure, those are all words you can say, but they were implausible at the time and have been falsified by events. TKO has kept going up.

Yesterday Silver Lake launched a considerably more interesting defense, which is that appraisal isn’t real and courts should just get rid of it. Bloomberg News reports:

Silver Lake and Endeavor ... asked the judge to prohibit dozens of investment firms from seeking appraisal on shares they purchased after the deal was announced, arguing that appraisal was meant only “as a safety net” for a single stockholder deprived of its right to block the merger and continue as an investor in the company. “Making litigation standing freely tradeable turns this court’s rulings from a means of providing redress to genuinely harmed parties into an investment strategy,” attorneys for Silver Lake and Endeavor wrote in the complaint.

The Wall Street Journal says:

In essence, Endeavor and Silver Lake argue the investors are interlopers who shouldn’t have a voice in the appraisal fight because they bought after the deal was agreed. 

A ruling on that could be a landmark decision on the rights of these arbitragers, an industry that buys up shares in announced deals. …

Silver Lake, which continues to defend the $27.50 per share price, says most of the shares involved were purchased long after the deal and were only bought to wage an appraisal fight, which it argues isn’t the intent of the law. 

“The appraisal statute never was intended to allow opportunistic funds, like Defendants here, to acquire shares after a merger was announced and pursue windfall profits,” the filing said.

Here is Silver Lake’s complaint:

Traditional Delaware jurisprudence refers to those seeking an appraisal remedy as dissenters to the merger. But that description could not be more inaccurate here. The appraisal class consists nearly entirely of shares deliberately bought after the merger announcement — in many cases at prices above the deal price — as a bet that the investors could collectively pressure a lucrative settlement, secure a “fair value” determination significantly exceeding the deal price, or, at worst, profit handsomely from above-market statutory interest rates. Their purchase of Endeavor stock was entirely motivated by their desire for the consummation of the merger— and the appraisal opportunity it would afford. In actuality, these petitioners are no more dissenters to the merger than the stockholders who executed written consents approving it.

The law does not allow investors like these to seek an appraisal award. Appraisal was legislatively fashioned as a safety net for the deprivation of the historical right of a single stockholder to block a merger and continue as an investor in the going concern of the target corporation. Petitioners who acquired shares after the Merger did not suffer that deprivation. To consider them subject to the protections of 8 Del. C. § 262 is a judicial expansion of a statute never intended, and never written to require, that it be wielded as a tool of appraisal arbitrage by investors who care nothing for participating as owners in a going concern.

Nor does the law permit stockholders to buy a lawsuit. While the free transferability of shares — and the concomitant transfer of rights and interests appurtenant to those shares — serves laudable policy goals, extending transfers of these rights to allow investment in appraisal and fiduciary-duty litigation disconnects remedies from injuries, and turns the courts into a speculative marketplace.

This case illustrates the extent to which the judicial system can become a vehicle for profiteering should litigation-focused risk arbitrage be permitted. …

Plaintiffs are therefore entitled to a declaratory judgment that Defendants who acquired shares after the Merger may not pursue an appraisal remedy for those shares.

To be clear, nobody “acquired shares after the Merger”; after the merger closed, the shares didn’t trade. The complaint says elsewhere:

Defendants here acquired the vast majority of the Endeavor shares for which they are pursuing appraisal after the Merger was announced. At the time Defendants acquired those Endeavor shares, the material terms of the Merger, including the per-share Merger Consideration, were public. And consent for the Merger had been obtained. Defendants thus were not subjected to the Merger involuntarily. They acquired their Endeavor shares voluntarily at prices that incorporated the publicly announced Merger Consideration and the market’s assessment of the likelihood the Merger would close and with the full knowledge and expectation that the Merger would in fact occur.

Defendants therefore seek to invoke the appraisal statute’s compensatory remedy without having suffered the injury the remedy was intended to compensate.

There are also some claims that some of the hedge funds here — and Carl Icahn, who bought a lot of Endeavor shares too late for appraisal, and is pursuing a separate fiduciary-duty lawsuit — conspired together in ways that violate securities disclosure rules and/or antitrust law. The antitrust claims seem entirely fanciful to me (the complaint is that the hedge funds “suppressed” the price of Endeavor stock by … buying it?), and the securities-law claims also seem pretty weak. (Supposedly they should have disclosed their intent to influence the governance of Endeavor, but Endeavor (1) was 74% owned by Silver Lake and (2) was going away in a merger, so they obviously couldn’t, and never did, influence its governance.)

But the main claim of the lawsuit is that the appraisal statute doesn’t mean what it says, and that courts shouldn’t “allow investment in appraisal.” The only people who should be able to get appraisal, in this theory, are shareholders who owned the stock before the merger was announced: They are long-term believers in the company and are getting cashed out at a price they didn’t approve. But hedge funds who buy after the merger is announced are mere speculators; they are not innocent victims with no choice but to sue; they are running toward the problem.

This strikes me as … quite wrong? Like, for one thing, the appraisal statute says what it says; it has rules about when you have to own shares to get appraisal, and those rules don’t say that you have to own the shares before the merger is announced. Endeavor’s own information statement for the merger says that shareholders had to demand appraisal within 20 days after Jan. 15, 2025, and hold their shares continuously after that, not that they needed to own shares before the merger was announced in April 2024.

For another thing, appraisal arbitrage has been a thing for decades, with cases going to the Delaware Supreme Court; it would be weird for the courts now to be like “oh that was all wrong, ignore all those cases.”

For a third thing, this analysis of markets seems wrong. Markets specialize. A lot of minority shareholders in Endeavor, when they found out that they were getting cashed out at $27.50 per share, presumably wanted more. Even more of them probably wanted more when they saw TKO continue to trade up. They all could have perfected their appraisal rights, gone to court and demanded more money from Silver Lake. But:

1. The rules about perfecting appraisal rights are actually quite complicated, and even sophisticated professional investors sometimes mess them up. If you are a retail investor or an index fund, you might just get this wrong and miss out on a higher payment.
2. More generally, fighting appraisal cases is a specialized endeavor, and if you are an index fund or retail investor you might just not know how to do it. You might not know what lawyers to hire or what arguments to make. The lawyers will be expensive, and if you have a small stake they might not be worth it. (You could join a class action, but Silver Lake seems to argue that that could be an antitrust or securities-law violation?)
3. Appraisal is risky: It takes a long time, you might lose, etc. If you’re a retail investor or index fund, you might prefer to be cashed out at an unfair price rather than spend two years fighting for a better one.

There are lots of investors who specialize in, more or less, owning shares of ordinary going-concern companies for ordinary fundamental reasons. And then there are some investors who specialize in weird situations like appraisal. If you’re an ordinary investor, and your ordinary company gets into a weird situation, you do not necessarily want to learn, on the fly, how to be a weird-situation investor. You might just want to sell your weird situation to a weird-situation investor, at the market price. If the weird-situation investing business is competitive, the market price you get will reflect much of the value of the weird situation, and you will be cashed out at a fair price. You will get much of the benefit of appraisal, and someone else will do the work. (And collect the rest of the benefit as a reward.)

A lot of ordinary minority shareholders in Endeavor presumably wanted more, and they got more: Endeavor’s stock traded above $28 for six months before the deal closed, closing as high as $35.50 per share on Feb. 13, 2025. Many (most?) of the ordinary investors got out of their Endeavor position at a higher price than Silver Lake was paying. The ordinary investors — the ones who owned Endeavor before the merger was announced and were sad about the price — have already gotten their appraisal remedy. Where did the higher price come from? From appraisal arbitrageurs (and Carl Icahn), who “deliberately bought [shares] after the merger announcement — in many cases at prices above the deal price — as a bet” on appraisal. Because that bet was possible (they thought!), they were willing to pay the ordinary investors a premium to the deal price.

Silver Lake’s argument is that that bet is invalid, so the appraisal arbs should get nothing (and should lose the premium they paid for their shares). Appraisal should be limited to “real” long-term shareholders, not opportunistic speculators. But in real life that would mean that no one would get appraisal: The real shareholders don’t specialize in it and wouldn’t be able to do it, and they wouldn’t be able to sell (at a premium) to specialists. Appraisal, for public companies, just wouldn’t exist. [4]

This is a radical position, and also the sort of thing that, five years ago, no one would even bother trying to argue. Of course Delaware courts weren’t going to just get rid of appraisal arbitrage. It’s allowed by statute, it’s been allowed by years of judicial rulings, and it is an important protection for minority shareholders in conflicted deals.

But times have changed. For one thing, it is weird for a judge, rather than the market, to decide the price of a merger. In the olden days, Delaware judges just cheerfully did that without much self-doubt. In modern times, though, they are much more deferential to the market, which makes appraisal less important. “Ehh the market price is probably fine” is a decent heuristic for most public-company mergers — not here, but the facts here are very unusual! — so maybe getting rid of appraisal is mostly fine. It would kill the business model of some hedge funds, sure, but maybe ordinary shareholders would rarely miss it.

For another thing, we are in a moment that is not very friendly to minority shareholder rights. The US Securities and Exchange Commission is trying to get rid of things like shareholder proxy proposals and shareholder lawsuits. Companies are leaving Delaware for Texas because they think Texas will be more friendly to managers and controlling shareholders, and less protective of minority shareholders. It used to be a competitive advantage for Delaware that it protected minority shareholders from lowball mergers; now that might be a disadvantage. I don’t like it, but Silver Lake might be right that appraisal has run its course and courts should just get rid of it.

You could have a pretty simple model of online gambling sites, which is that they want to attract and retain customers who will lose as much money as possible. Sharp gamblers who win are bad customers. Occasional small-time gamblers are bad customers, or at least not great customers. People who constantly bet a lot of money and reliably lose are good customers. People who bet a lot of money and reliably lose are also, however, “problem gamblers.” I mean, not entirely. The overlap is not perfect. Probably somewhere there’s a billionaire who likes to blow $10,000 a night on online casino games. [5] That’s the perfect customer: He constantly loses large amounts of money to the casino, but enjoys doing so and can afford it. But, you know. For the most part the people who are regularly losing lots of money to online casinos would be better off not losing lots of money to online casinos.

And then if you’re a modern, regulated, technologically advanced online casino, you will have two groups of engineers who are thinking about identifying these customers:

1. The marketing group will be thinking about questions like “how can we effectively target our marketing to people who will lose a lot of money, so they lose a lot of money to us?”
2. The responsible gaming group will be thinking about questions like “how can we identify problem gamblers, so we can get them help before they lose too much money?”

And, again, in my simple model, those are exactly the same question, and if you have found a promising approach to identifying lucrative customers then you have also found a promising approach to identifying problem gamblers.

Of course my simple model is too simple, and you could have some more nuanced model in which lucrative casino customers look like this and problem gamblers look like that and they’re totally different and the techniques to identify them will be unrelated. If you run an online casino, you definitely have this more nuanced model. “We don’t want problem gamblers,” you say, “what would make you think that, what a bizarre and insensitive thing to even suggest,” etc.

Anyway here’s a fascinating New York Times article about the two groups of engineers at DraftKings, the sports betting and online casino company. The marketing team asked its engineers to build a machine learning model to target its promotions at the most lucrative customers, and the engineers were like “yeah that makes sense” and went and did it:

In 2023, DraftKings took customer betting records and built a machine learning model, a form of artificial intelligence that seeks patterns in data, to answer the question: Who was more likely to respond to promotions by gambling — and losing — more?

And then some of those engineers were like “wait, are we building a model to target problem gamblers?”

Soon, a question began to gnaw at [one of them]: Aren’t many of these same people prone to addiction? “We are looking for traits and features that we can target that indicate a good investment,” he said. By strict financial logic, “the best investment would be a problem gambler.”

And they raised this question with their bosses, who were like nonononononononono, no, what, why would you even think that:

The company disputed how some former employees characterized its use of promotions, saying they are “directed toward customers who demonstrate sustained, engaged use of our platform, not toward customers based on their losses.” ...

Lori Kalani, who as DraftKings’s chief responsible gaming officer leads the company’s efforts to prevent problem gambling, said in an interview that its business depended on “customers who are betting within their means, are betting for entertainment and betting for fun.”

Meanwhile, in the responsible-gaming part of the company, other engineers were building their own machine learning models to identify problem gamblers:

A data scientist named Nestor Hernandez …  reviewed academic research into problem gambling, then developed a machine learning model to analyze the betting records — the same used for promotional targeting — of customers the company had already flagged for risky behavior. …

In early 2025, ... the team prepared to share the new model with company officials, including Ms. Kalani. But the day of the presentation, the meeting was canceled. Two other attempts by DraftKings employees to build similar algorithms have also been shelved, according to two former employees.

Ms. Kalani said that company leaders made a “collective decision” not to use predictive technology for problem gambling. “We evaluated that it wasn’t evidence-based,” she said. The company decided that its existing system was a “better methodology.”

Weird that the find-lucrative-customers model works and the find-problem-gamblers model is just voodoo! Just those subtle differences between those two categories.

Several people sent me this post on X by Steak ’n Shake, arguing that “America’s corporate governance system is broken, and it’s killing public companies. … The root of the rot is index funds. … By stripping index funds of their arbitrary voting power and empowering engaged investors, we will finally torch corporate cronyism and usher American capital markets into a golden age of capitalism.” Etc. 

The responses to this tweet are about what you’d expect of the responses to a tweet on corporate governance from a fast-food chain. “Sir this is a Steak N Shake” got 6,000 likes. “This is an abstract for a law review article on corporate governance, from Steak 'n Shake.” “Sound analysis from an unlikely source.” Etc.

To me this is like saying “weird that a video game store would try to do a hostile takeover” or “weird that a software company would accumulate Bitcoin.” Steak ’n Shake is a fast-food chain, sure, but it is also the vehicle of an activist investor with particularly strong views on corporate governance. It has long been run by Sardar Biglari, who has been waging an activist fight against Cracker Barrel Old Country Store Inc. for as long as I have been a financial journalist. There is a Harvard Business School case study about it. Biglari’s complaints about index fund voting are related to that fight: Basically he thinks that index funds are too hesitant about supporting activist investors, he would like their votes, and he thinks that changing the index fund voting mechanism will help activists like him. And he (or someone who works for him) is tweeting that view out from the Steak ’n Shake account. Totally normal, really. Who would have strong idiosyncratic informed views about public company governance, if not activist investors who run public companies? Even public companies that are fast-food chains.

There are two possible interpretations of World Liberty Financial, the crypto whatever affiliated with Donald Trump. One view is that it is “upgrading finance for the digital era” by building products that “bridge classic banking with the digital financial future.” The other is that it raised a bunch of money to give to Donald Trump. Which reading is more correct? I mean:

1. If WLF used the money that it has raised to build the products it said it would build, then that would suggest that it is in the business of upgrading finance for the digital era.
2. If WLF did not build the products that it said it would build, but the money it raised ended up in the pockets of Donald Trump, then that would also be informative. 

Bloomberg’s Olga Kharif and Annie Massa report … you know what, I’m not going to tell you. Just guess. I bet you can figure it out!

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