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Activision shareholders are suing to block the video game company’s proposed $68.7 billion sale to Microsoft, alleging the deal will primarily benefit Activision insiders to the detriment of ordinary investors.
According to a pair of lawsuits filed on Thursday in California and New York federal court, Activision’s disclosures to the Securities and Exchange Commission detailing the transaction raises questions of whether the company’s board of directors have a conflict of interest in securing approval of the deal. It also claims that the filing, called a preliminary proxy statement, lacks crucial information to evaluate the sale.
“The process deployed by the Individual Defendants was flawed and inadequate, was conducted out of the self-interest of the Individual Defendants and was designed with only one concern in mind — to effectuate a sale of the Company by any means possible,” reads the complaint filed on Thursday in California federal court.
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An Activision Blizzard spokesperson said in a statement that, “We disagree with the allegations made in this complaint and look forward to presenting our arguments to the Court.”
Shareholder lawsuits challenging proposed acquisitions and mergers are par for the course, but the lawsuits compound antitrust scrutiny of the all-cash transaction that would further entrench Microsoft as a gaming powerhouse. The acquisition, if approved, would significantly boost Microsoft’s bid to become the leader in cloud-based gaming services by boosting its offerings of blockbuster video games, including Call of Duty, World of Warcraft and Candy Crush.
The deal was also proposed as Activision fights claims of a enabling a “frat house” culture in which sexual harassment and discrimination is encouraged. Investigations by state and federal regulators spurred Activision chief executive Bobby Kotick to consider Microsoft’s bid to buy the company, reported The Wall Street Journal last month.
Activision has denied the claim.
The shareholders say Activision insiders have a conflict of interest because they negotiated large portions of company stock, options, and other equity awards that become viable once the deal is approved. They similarly take issue with “golden parachute packages” for senior management that entitles a $14.6 million payout to Kotick, $25.4 million payout to chief financial officer Armin Zerza and $29.1 million payout to chief operating officer Daniel Alegre if they are terminated under certain circumstances.
“The breakdown of the benefits of the deal indicate that Activision insiders are the primary beneficiaries of the Proposed Transaction, no the Company’s public stockholders such as plaintiff,” the complaint states. “The board and the company’s executive officers are conflicted because they will have secured unique benefits for themselves from the proposed transaction not available to plaintiff as a public stockholder of Activision.”
The shareholders also claim that Activision failed to disclose vital information, such as revenue and operating income, required to assess the proposed deal.
“The Preliminary Proxy Statement omits and/or misrepresents material information concerning, among other things: (a) the sales process and in particular certain conflicts of interest for management; (b) the financial projections for Activision, provided by the Company to the Company’s financial advisor Allen & Company LLC; and (c ) the date and inputs underlying the financial valuation analyses, if any, that purport to support the fairness opinion created by Allen & Company and provided to the Board,” the complaint reads.
The complaint claims violations of the Securities Exchange Act, which requires the disclosure of certain information to consummate an acquisition. It seeks to halt the deal and require Activision to reveal more details about the transaction.
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