The WGA West issued a second “Investor Alert” on Thursday in advance of Endeavor’s IPO, warning that the new public company’s corporate governance structure dramatically favors company insiders including top executives Ari Emanuel and Patrick Whitesell and restricts public investors’ ability to exercise meaningful oversight.
“The potential for conflicts of interest with public investors echoes current practices in Endeavor’s representation business that have enriched the agency at the expense of its clients, and that recently caused 1,400 writer-clients to walk away from the firm,” said WGA West director of research Laura Blum-Smith.
The alert said Endeavor’s dual-class stock structure gives CEO Emanuel, executive chairman Whitesell, and affiliates of private equity owner Silver Lake control of most of the company’s non-traded Class Y shares, which carry 20 votes compared to the single-vote public Class A shares.
“Endeavor’s dual-class structure will likely disqualify it from inclusion in FTSE Russell and S&P Dow Jones indices, which Endeavor notes could adversely affect the market price of its Class A common stock,” the alert said.
Endeavor’s structure also includes “poison pills” designed to give company insiders indefinite control, the alert warned.
“These provisions are particularly concerning as the company concedes that its top executives may have conflicts of interest with public investors, noting ‘Messrs. Emanuel’s and Whitesell’s, Executive Holdco’s and the Silver Lake Equityholders’ interests may not be fully aligned with yours, which could lead to actions that are not in your best interest,” it added.
The alert referenced the current stalemate between the WGA and WME. The WGA called off negotiations with the Association of Talent Agents on June 21 in favor of pursuing individual talks with nine top agencies as it enforces a total ban on packaging fees and affiliated production for agents representing guild members. No new talks have been scheduled.
“This is not a theoretical concern as Endeavor’s conflicts of interest with its clients are currently having an impact on the company’s representation segment, where it has lost 1400 writer-clients since April,” the guild said in Thursday’s investor alert.
The WGA took Endeavor to task a month ago, sending a June 26 letter to William Hinman, director of the SEC’s corporate finance division, accusing Endeavor of misrepresenting the number of clients it has in its talent representation units in the IPO prospectus. Endeavor strongly denied the guild’s assertion in June.
Endeavor declined to comment to Thursday’s investor alert with a reprsentative noting that the company is in a “quiet period” prior to the IPO.
Following a strong vote of support in March from writers, the WGA instructed guild members on April 12 to “fire” their agents after the sides failed to reach an agreement on a new Code of Conduct that ended longstanding industry practices. The parties have turned to the courts to settle their differences, with the WGA suing the big four agencies, and three agencies so far — WME, CAA and UTA — suing the WGA back.
The WGA has scored a trio of victories with a pair of midsize agencies, Verve and Kaplan Stahler, agreeing to sign the code of conduct and a group of Abrams Artists agents forming a new agency that will sign the code.