FanDuel co-founder wins document review order in shareholder lawsuit

It was reported that Special Master Alan Scheinkman, presiding over the case in the New York Supreme Court, directed the defendants to hand over legal communications they had held back so that these can be examined confidentially. Nigel Eccles, who co-founded FanDuel, is pursuing the shareholder action together with over 100 other plaintiffs. The defendants still contest the shareholders' claims, and the order leaves the substance of those claims untouched.

The suit stems from the 2018 combination of FanDuel with the US business of Paddy Power Betfair, a deal that gave the company's ordinary shareholders nothing back financially. Holders were at first set to receive roughly 40% of the merged entity, yet the consideration came in at $465.5 million. That figure did not reach the $559 million level that had to be paid to preferred shareholders first, before any proceeds could flow to ordinary holders. The plaintiffs claim KKR, Shamrock Capital and others set FanDuel's value too low on purpose so that ordinary shareholders would be eliminated.

Only two years after that merger, the private equity firms offloaded their holdings to Flutter Entertainment, and the deal carried an implied enterprise value of $11.2 billion. The plaintiffs maintain that the gains from FanDuel's later deals, this one included, never reached them.

An earlier lawsuit filed by the plaintiffs against FanDuel in the New York Supreme Court was dismissed in 2022. The shareholders later filed another lawsuit, which entered the court earlier this summer.

For a document to be covered by Scheinkman's order, it has to touch on one of three subjects at minimum: how FanDuel was valued, the drag-along rights held by KKR and Shamrock, or the waterfall provision that controls how merger proceeds are split. That provision sets out how money is divided between share classes, including preferred and ordinary holders. Drag-along rights, for their part, let KKR and Shamrock force the remaining shareholders into a transaction.

Scheinkman turned down the position that merely expecting a lawsuit shields documents from disclosure automatically. He further held that attorney-client privilege questions in the case fall under Scots law, even though the matter is being heard in New York. His reason was that FanDuel was a Scottish company at the time in question and the dispute involved its internal corporate affairs.

The next step falls to the defendants, who have to locate the pertinent documents and provide them to Scheinkman so he can examine them confidentially. After that, KKR and Shamrock will decide which individual documents, if any, should be handed to the plaintiffs.