Update: On March 23, “[m]embers of the Council of Institutional Investors voted to adopt a new policy that all investors in initial public offerings have equal voting rights among their shares.” See also here. The official press release on the new policy is here.
The Council for Institutional Investors (CII) called Red Rock Resorts a “perfect example” for why the CII Policies Committee and board of directors approved its latest policy statement on newly public companies. CII’s policy statement calls on newly public companies to include sunset mechanisms for corporate governance provisions that insulate management from public shareholders. According to CII, Red Rock is a “perfect example” because its board approved five antitakeover provisions without including sunset mechanisms or requiring a future vote of shareholders. These provisions include:
- A dual-class share structure
- Supermajority approval provisions
- Limitations on actions by written consent and special meetings of stockholders
- Fertitta family exemption from a Delaware antitakeover statute
- The board’s right to issue preferred stock
The March 3, 2016 CII Governance Alert can be found here (subscription required).
In the ISS benchmark policy update for 2016, the proxy firm recommends voting against or withholding votes from directors, committee members, or the entire board, if they take actions in connection with an IPO that are adverse to shareholder rights, such as limiting shareholders’ ability to amend the company’s bylaws and charter. Glass Lewis has similar recommendations for pre-IPO boards that adopt anti-takeover provisions, poison pills, and other unilateral actions. And Stanford’s Rock Center for Corporate Governance and the SEC are hosting an event this March to discuss governance issues related to pre-IPO companies.
We have criticized the corporate governance of Red Rock Resorts, Inc. since its IPO was announced last October (and when it was still called Station Casinos, Inc.). Prospective investors should look to CII, ISS, and Glass Lewis policy recommendations on pre-IPO corporate governance and ask: “Do I want to be a second-class shareholder of Red Rock Resorts?”
See more of our analysis of the Red Rock Resorts/Station Casinos IPO:
- Download our unauthorized roadshow presentation, “Red Rock Resorts: A Second-Class IPO” here.
- The insiders are cashing out at a high price compared to the company’s estimated equity.
- Growth concerns in the company’s primary Las Vegas locals market and the lack of new development agreements in the tribal gaming market.
- The tax receivable agreement could drain substantial amount of cash out of the company and affect free cash flow.
- The dual-class structure will make public investors second-class shareholders.
- The lack of disclosure regarding the regulatory problems of Deutsche Bank, a 25% current owner.