Activision Blizzard, Inc.

CASE CAPTION	Sjunde AP-Fonden v. Activision Blizzard, Inc.
COURT	Court of Chancery of the State of Delaware
CASE NUMBER	2022-1001-KSJM
JUDGE	Honorable Kathaleen St. J. McCormick
PLAINTIFF	Sjunde AP-Fonden
DEFENDANTS	Activision Blizzard, Inc., Robert Kotick, Brian Kelly, Robert Morgado, Robert Corti, Hendrik Hartong III, Casey Wasserman, Peter Nolan, Dawn Ostroff, Barry Meyer, Reveta Bowers, Kerry Carr, Microsoft Corporation, and Anchorage Merger Sub Inc.

CHANCERY COURT ALLOWS PENSION FUND TO PURSUE CLAIMS THAT MICROSOFT-ACTIVISION MERGER IS INVALID UNDER DELAWARE LAW

On behalf of plaintiff Sjunde AP-Fonden (“AP-7”), Kessler Topaz recently secured a ruling largely denying defendants’ motions to dismiss AP-7’s claims challenging the $68.7 billion merger between Microsoft Corporation and Activision Blizzard, Inc., the company behind popular video games Call of Duty and World of Warcraft.

AP-7 originally instituted this litigation in response to allegations of sexual harassment against Activision’s CEO Robert Kotick. AP-7 sought to hold Activision’s board of directors (“Board”) and management accountable for a widespread toxic corporate culture that negatively impacted the company and its stockholders.

As the scandal deepened, Activision’s competitors perceived that Activision was wounded and its shares were trading for less than their fair value. Kotick also knew that a sale of the company would potentially insulate him from further scrutiny and legal claims. Activision’s stock, which had traded over $100 per share in February 2021, dropped to the low $60s by the second half of November and stood at $65.39 on January 14, 2022, the last trading day before the Board approved the Merger Agreement. On January 22, 2022, Kotick and Microsoft agreed that Microsoft would buy Activision for $95 per share.

AP-7 alleges that the Merger undervalued Activision’s shares and was engineered to protect Kotick and management rather than to maximize stockholder value. AP-7 also alleges that the Merger failed to comply with multiple provisions of the Delaware General Corporation Law (“DGCL”).

Among other claims, Plaintiff alleged that the Activision Board did not properly approve the Merger under Section 251 of the DGCL because material terms of the deal had not been finalized at the time the Board approved it. Plaintiff also alleged that the Board improperly delegated to a committee the decision of whether Activision stockholders would receive dividends while the Merger was pending. That committee had then agreed with Microsoft that it would only pay one $0.47/share dividend during the Merger’s pendency. Plaintiff also alleged that as a result of these statutory violations, Microsoft unlawfully “converted” Activision stockholders’ shares when it completed the Merger.

As expected, the Merger drew regulatory and antitrust scrutiny, and thus took a long time to complete. After AP-7 filed its complaint challenging the Board’s handling of stockholders’ right to dividends, on July 18, 2023, Activision and Microsoft agreed to let Activision pay a dividend of $0.99/share, a total of more than $700 million.

On June 5, 2023, the defendants moved to dismiss the Complaint’s statutory and conversion claims. On October 13, 2023, the defendants consummated the Merger. On February 29, 2024, Chancellor Kathaleen St. J. McCormick issued two opinions that largely denied defendants’ motions to dismiss AP-7’s claims.

Chancellor McCormick ruled that AP-7 had adequately pled that (1) the Merger was invalid under Section 251 of the DGCL; (2) the Board improperly delegated to a committee the negotiation and approval of the dividend provision of the merger agreement; and (3) Microsoft had unlawfully converted Activision stockholders’ shares when it closed the Merger. Chancellor McCormick determined that boards of directors “must strictly comply with statutory requirements governing mergers,” and that “requiring a board to approve an essentially complete version of a merger agreement” merely reflects “the basic exercise of fiduciary duties, not to mention good corporate hygiene.”

Chancellor McCormick has not yet ruled on the viability of AP-7’s claims that the Board breached its fiduciary duties by agreeing to the Merger for an inadequate price. AP-7 is gratified by the Court’s ruling and looks forward to pressing its claims forward.