(CN) – Approving the largest cash award ever in a derivative suit, a judge signed off on a settlement to Vivendi’s restructuring that gives Activision Blizzard $275 million.
Vivendi had a controlling equity position in Activision, but the video game giant behind “Call of Duty” announced on July 26, 2013, that the French multinational had agreed to sell back 85 percent of that stake for $8.17 billion.
With Vivendi desperate for cash to pay of more than $17 billion in debts, Activision bought 439 million of Vivendi’s shares for $5.83 billion, and an investment group headed by company insiders CEO Bobby Kotick and co-chairman Brian Kelly picked up 172 million shares in a private sale for $2.34 billion via an investment vehicle called ASAC.
The prices included a 10 percent discount on Activision’s closing price the day before the deal’s announcement.
Coupled with the jolt to Activision’s stock price, the discounted sale price earned the Kotick-led investment group an unrealized gain of more than $725 million on the first day of trading after the deal closed.
Activision’s board initially refused to approve the transaction unless ASAC’s voting rights were capped at 19.9 percent, but Kotick and Kelly rejected the cap, and refused to support any deal except their own.
Vivendi ultimately negotiated directly with Kotick and Kelly, and the deal that the board approved capped ASAC’s voting power at 24.9 percent.
Approving a settlement of the case shareholders eventually brought in Delaware Chancery Court, Vice Chancellor J. Travis noted Wednesday that “Activision indisputably received significant benefits from the restructuring.”
“The problem with the transaction was not the lack of benefits to Activision, but rather the extraordinary benefits that Kotick and Kelly extracted for themselves,” Laster added.
The directors personally gained $178 million when Activision’s share price jumped at the deal’s announcement. They also stood to double their money if Activision’s stock price remained at $17.4 per share, or make nine times their money if Activision’s stock price doubled to $35 per share in four years.
They would lose nothing if the company’s stock price declined by 20 percent from the post-announcement price.
In addition, Kotick and Kelly won direct control over 26 percent of Activision’s voting power, although it was capped at 24.9 percent. ASAC affiliates controlled another 9 percent of the voting power. Kotick was also able to place two close friends on the board of directors, making a majority of directors likely to vote with ASAC.
In the $275 million settlement to Activision that Laster approved Wednesday, Vivendi will pay $67.5 million of the total, while ASAC will pay more than $150 million.
The deal reduces Kotick and Kelly’s voting power to 19.9 percent, and it creates two new spots on the board, to be filled by individuals unaffiliated with Kotick or Kelly.
Laster noted that “the monetary consideration of $275 million is the largest cash recovery ever achieved on stockholder derivative claims.”
“The magnitude of the settlement reflects that lead counsel advanced strong claims for breach of the duty of loyalty,” Laster added.
While the settlement allocates all the money to Activision, rather than individual class members, the class directly benefits through an increase in voting power and influence of unaffiliated shares, the chancellor found.
“Although these corporate governance measures can be viewed as good for Activision, they are primarily good for the class,” Laster said.
The judge awarded lead counsel $72.5 million, citing the complexity of the litigation, and the substantial nonmonetary relief won for the class. Lead plaintiff Anthony Pacchia will also receive a special award of $50,000.
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