Detroit Cops Sue WWE’s McMahon Amid Shareholder Revolt
Detroit’s Police and Fire Retirement System sued WWE executive chairman Vince McMahon last Thursday, seeking a declaration that would effectively block the 77-year-old billionaire from regaining control of WWE’s board of directors and prevent him from expediting a sale. The retirement system requests that its complaint, which was filed in Delaware’s Court of Chancery, be recognized as a class action on behalf of other WWE stockholders. The complaint could slow a potential sale of WWE, which has an enterprise value of $8.6 billion according to Sportico’s estimates.
The complaint argues that McMahon has breached fiduciary duties as controlling stockholder by trying to “impose his personal will on WWE and its [board] by purporting to adopt a package of invalid and inequitable bylaw amendments that would hamstring the Board from making critical business decisions.” Although McMahon owns approximately 39% of WWE’s equity, he enjoys far greater stockholder power due to the company’s financial configurations. According to the complaint, McMahon owns about 92% of outstanding Class B shares, which contain 10 votes per share, whereas Class A shares hold only one vote per share. “Overall,” the complaint asserts, “McMahon controls 81% of WWE’s total voting power.”
More from Sportico.com
McMahon is described as a serial sexual harasser. Last year McMahon stepped down as chairman of the board, chair of the executive committee and CEO amid reports of more than $12 million in “secret settlements to his accusers.”
McMahon’s return followed what the complaint says was corrupt—and unlawful—dealing. In December, the 11-member board declined to allow McMahon to return. In a letter to McMahon, the board attributed the denial to protecting stockholders. “Your return to the Company at this time,” the board wrote, “would not be prudent from a shareholder value perspective [given that] government investigations into your conduct by the U.S. Attorney’s Office and SEC are still pending.”
But in January McMahon executed a written consent to remove and replace three directors with himself and, the complaint says, “two cronies” and modify WWE bylaws so they require stockholder approval for (among other things) transactions involving media rights. WWE’s media rights deals are set to expire in 2024. McMahon is accused of using his control over company stock as leverage for threatening to “withhold support” for media rights negotiations and “hold [WWE] hostage” unless he was reinstalled.
As the Police and Fire System tells it, McMahon’s moves run afoul of both Section 141 of the Delaware General Corporation Law and WWE’s charter. Altering the company’s governance structure in the absence of bargained for exchange between WWE and McMahon, the system asserts, “usurps the power of the Board over critical corporate management functions and vests it solely in McMahon in his capacity as a stockholder.” Neither Delaware law nor WWE’s charter permits the kind of transfer of power the system says occurred, and the system wants a declaration the consent is void.
The system’s complaint follows a nearly identical complaint filed on Jan. 10 by a WWE stockholder named Scott Fellows. Attorneys from Labaton Sucharow, Friedlander & Gorris and Kaskela Law represent the Police and Fire fund and Fellows.
WWE did not respond to a request for comment. However, expect attorneys for the company to insist that none of McMahon’s moves violated the law. While McMahon may have acted aggressively, the company could maintain that the board retains sufficient decision-making authority. It could also argue that McMahon’s power reflects a lawful circumstance: his ownership of stock.
One worry for the WWE is that stockholder litigation can take time to play out in court. The two complaints could complicate any sale and require contractual assurances that may alter the sale price.
Best of Sportico.com
