FanDuel Co-Founder Wins Key Ruling in Shareholder Lawsuit

FanDuel co-founder Nigel Eccles and more than 100 other plaintiffs are embroiled in a lawsuit with the company, alleging that KKR, Shamrock Capital, and others undervalued FanDuel to wipe out ordinary shareholders. In the most recent development in the case, Eccles’ side won a major victory. What Brought On the Lawsuit? The dispute arises from FanDuel’s 2018 merger with Paddy Power Betfair’s US operations, which left its ordinary shareholders with no financial return. Under the terms of the deal, FanDuel’s shareholders were initially entitled to about 40% of the combined business. However, the merger consideration was valued at $465.5 million, falling short of the $559 million threshold that preferred shareholders were entitled to receive before ordinary shareholders could benefit from any proceeds. FanDuel subsequently grew to become the largest sports betting operator in the US. Just two years after the merger, the private equity firms sold their stakes to Flutter Entertainment in a transaction that implied an enterprise value of $11.2 billion. Eccles and the other plaintiffs were unhappy about this, alleging they have not seen the financial benefits from this, and they filed a lawsuit against FanDuel in the New York Supreme Court. Unfortunately for the plaintiffs, that lawsuit was dismissed in 2022. However, that did not stop Eccles and the other shareholders, as they later filed another lawsuit, which recently bore some fruit. What Did Court Officials Decide? Special Master Alan Scheinkman ordered the defendants to submit certain previously withheld legal communications for confidential review. To fall within the scope of the order, the documents must relate to at least one of three issues: FanDuel’s valuation, KKR and Shamrock’s drag-along rights, or the waterfall provision governing the distribution of merger proceeds. The waterfall provision governs the distribution of proceeds among different classes of shareholders, such as the preferred ones and the ordinary ones. Meanwhile, drag-along rights enable KKR and Shamrock to compel other shareholders to participate in the transaction. Additionally, the special master rejected the argument that documents are automatically protected from disclosure merely because the defendants anticipated litigation. He also determined that Scots law would govern all questions of attorney-client privilege in the case, despite the dispute arising in New York. This is because FanDuel was a Scottish company at the relevant time and the dispute concerned its internal corporate affairs. The defendants must now identify and submit the relevant documents to Scheinkman for confidential review. KKR and Shamrock will then determine which, if any, of the individual documents must be disclosed to the plaintiffs. Scheinkman’s decision marks a significant victory for Eccles and the other plaintiffs, and it’s the first major step for their suit since the case entered the court earlier this summer. However, the ruling does not address the merits of the shareholders’ allegations, which the defendants continue to dispute. In other recent news about FanDuel, rapper Lil Wayne has partnered with the company to promote its new Boost feature.