LOS ANGELES (CN) — An Activision Blizzard shareholder sued to block the proposed $68.7 billion sale of the video game company to Microsoft, claiming the deal primarily benefits insiders rather than ordinary investors.
The preliminary proxy statement Activision filed Feb. 18 for shareholders to vote on lacks crucial information, such as the composition of the committee in charge of the sales process, the actual benefits management will receive when the sale goes through, and the financial projections on which the company's value was based, according to a complaint filed Thursday in federal court in Los Angeles.
Activision shareholder Kyle Watson of Tennessee claims Activision's management, including CEO Robert Kotick and its directors own large, illiquid blocks of shares in the company, as well as options, restricted stock and other equity awards that will be part of the transaction. But he claims the proxy statement doesn't provide an accounting of what the insiders will end up receiving in exchange for these holdings.
"The breakdown of the benefits of the deal indicate that Activision insiders are the primary beneficiaries of the proposed transaction, not company's public stockholders," Watson says. "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."
An Activision Blizzard spokesperson said in an email that the company disagrees with the allegations made in the complaint and that it looks forward to presenting its arguments in court.
Shareholder lawsuits over proposed mergers and acquisitions are far from unusual, but the size of the Microsoft transaction and Activision's recent trouble with regulators and its employees over claims of a "frat house" culture that tolerated sexual harassment and discrimination of its women workers makes this case more than just a boilerplate complaint.
The Wall Street Journal reported last month that the allegations about the toxic workplace culture at the maker of "Call of Duty" and "Candy Crush," which has prompted investigations by state and federal regulators as well as by the Securities and Exchange Commission, were a "catalyst" in Kotick's decision to negotiate the deal with Microsoft. Activision has denied some of the claims reported the Journal.
The all-cash $68.7 billion deal, if it survives any antitrust challenges, will turn Microsoft — maker of the Xbox gaming system — into one of the world's largest video game companies and help it compete with tech rivals such as Facebook parent Meta in creating immersive virtual worlds.
Thursday's shareholder lawsuit claims investors are left in the dark about who was part of the ad-hoc committee that oversaw the sales process and in particular about whether it was composed of independent, disinterested board members.
The preliminary proxy statement also lacks the financial projections that were part of negotiating the value of the deal, according to the complaint.
"This information is necessary to provide plaintiff in his capacity as a company stockholder a complete and accurate picture of the sales process and its fairness," Watson says in his complaint. "Without this information, plaintiff is not fully informed as to defendants' actions, including those that may have been taken in bad faith, and cannot fairly assess the process."
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