Activision Blizzard Inc. Chief Executive Officer Robert Kotick faced firing over his demand that he lead a group helping to buy out most of Vivendi SA (VIV)’s stake in the video-game company he ran, according court filings.
Executives of Vivendi, Activision’s controlling shareholder in May 2013, considered ousting Kotick, 51, over his refusal to back any sale of its stake that didn’t include his investment group, according to an amended complaint filed last month by a shareholder.
Kotick, CEO of Santa Monica, California-based Activision for two decades, wasn’t fired, and the $8.2 billion deal that followed left him in control of the profitable maker of the Call of Duty and Skylanders games.
“I really wonder who’s going to fire him,” Vivendi’s then-CEO Jean-Francois Dubos asked in a May 31, 2013, e-mail quoted in the filing. “Myself, happily. Tomorrow if you want,” replied Philippe Capron, who was both Vivendi’s chief financial officer and Activision’s chairman at the time.
A judge ruled in June that Kotick and current Activision Chairman Brian Kelly must face investor claims that they improperly benefited from leading the group that acquired $2.34 billion of Vivendi’s Activision shares after the Paris-based entertainment company decided to sell most of its stake.
Some Activision stockholders said directors wrongfully allowed Kotick and Kelly’s group, which included Chinese video-game publisher Tencent Holdings Ltd. (700), to buy 25 percent of Vivendi’s Activision stock at the same discounted price Activision paid for $5.83 billion of the shares. The deal allowed the men to gain control over the maker of the popular World of Warcraft game without paying a premium, according to Delaware Chancery Court filings.
Activision’s board of directors “supports the ongoing leadership of the company by Bobby Kotick and Brian Kelly,” Maryanne Lataif, an Activision spokeswoman, said today in an e-mailed statement. “The recent transaction restructuring the company’s ownership has received widespread market support.”
Kotick, who took over as Activision’s CEO in 1991, allegedly threatened to quit last year if directors made a deal over the Vivendi stake without his group, according to court filings.
Kotick told Activision board members “he would not cooperate with a debt or equity offering or any other process that involves a result other than” the offer by his investment group to buy Vivendi’s shares, according to the filing. The CEO said the board “could terminate him if they so chose.”
“I think Bobby is making the same bet he made three years back and that we wouldn’t dare letting him go,” Vivendi General Counsel Frederic Crepin said in an e-mail included in court papers. Electronic messages between the French executives were translated into English in the filing.
Simon Gillham, a Vivendi spokesman, didn’t immediately return a call for comment on e-mails about Kotick’s possible ouster.
Capron said in a June 1, 2013, e-mail he’d been in contact with Richard Sarnoff, one of Activision’s independent directors, who indicated he opposed allowing Kotick’s group to participate in the buyout, especially if they got shares at a discount. Sarnoff was part of a board committee negotiating the terms of the Vivendi buyout.
Sarnoff “believes our deal without BKBK is good. He will help us if we decide to fire Bobby,” Capron said in an e-mail. BKBK was used by directors as a reference to Kotick’s and Kelly’s proposal to participate in the deal. Capron added in his e-mail that Kotick’s public image was “very strong.”
Kristi Huller, a KKR spokeswoman, declined to comment on the e-mail describing Sarnoff’s support for firing Kotick over his demand to participate in the deal.
“We’ll put pressure on Bobby and if he continues to refuse, the market will understand his departure,” Capron said in the e-mail. Capron left Vivendi in November to become Veolia Environment SA (VIE)’s chief financial officer.
Ultimately, Vivendi executives bowed to Kotick’s demands that his investment group, which included Davis Advisors and Leonard Green & Partners, buy a block of the French company’s Activision stake. “Kotick understood he had tremendous leverage to push” directors into allowing his group’s involvement, the shareholders contend in the suit.
After Activision’s independent directors including Sarnoff concluded the company needed Kotick’s and Kelly’s support for the buyout of Vivendi’s majority holdings, the French company acquiesced, shareholder Anthony Pacchia alleged in the amended suit, filed June 25.
Combined with the Vivendi shares Activision purchased, Kotick and Kelly now control the U.S. game maker, Pacchia said. Vivendi sold half its remaining Activision stake to the public in May for $850 million, leaving Vivendi with about 41.5 million shares, or 5.8 percent, of the video-game maker.
Pacchia and another Activision investor fault directors for allowing Kotick and Kelly to reap a windfall as insiders by participating in the buyout group.
The men personally invested $100 million while their partners contributed more than $1.62 billion, Pacchia said in court filings. Kotick and Kelly stood to receive as much as “25 percent of the total gain” of the group’s “$2.34 billion below-market investment in Activision stock,” he said.
Pacchia said Kotick and Kelly considered a management-led buyout of Vivendi’s stake as early as 2012, when they approached Peter Nolan, an ex-Activision director who was managing partner at Los Angeles-based private-equity firm Leonard Green. As part of the proposed deal, Kotick and Kelly approached Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) about participating, Green said in an Aug. 16, 2012, e-mail.
“Huge deal. The Chinese claim that they will put up between 1-2b,” Nolan said. “The boys are meeting with buffett on weds in Omaha. We are the only pe firm. Super confi.” In April, Green stepped down as one of the private-equity firm’s managing partners.
Besides Kotick and Kelly, Pacchia is suing Vivendi executives who served as Activision directors, including Capron, Crepin and Dubos, for failing to protect minority shareholders’ interests.
The directors violated duties to shareholders by “approving a self-dealing and unfair transaction,” Pacchia said. Kotick and Kelly deny Pacchia’s claims in court filings.
The case is set to go to trial before Delaware Chancery Court Judge Travis Laster Dec. 8 in Wilmington. Laster last year issued an order barring the Vivendi buyout from proceeding. The Delaware Supreme Court overruled him.
The case is In re Activision Blizzard Inc. (ATVI) Stockholder Litigation, 8884, Delaware Chancery Court (Wilmington).
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