Activision CEO Kotick Threatened to Quit Over Buyout Role
Activision Blizzard Inc. Chief Executive Officer Robert Kotick threatened to quit if directors didn’t allow him to lead a group that helped buy out most of Vivendi SA (VIV)’s stake in the video-game maker for $8.2 billion, according to court papers.
Kotick demanded that Activision’s board back his plan to have the Santa Monica, California-based maker of video games such as “Call of Duty” buy back $5.83 billion in stock from Vivendi while an investment group led by the CEO would buy another $2.34 billion of Vivendi’s stake, a document filed by an Activision shareholder suing over the deal shows.
Kotick, who took over as Activision’s CEO in 1991, threatened to leave “if the company were to agree to a transaction without” his support, lawyers for shareholder Anthony Pacchia said in an amended lawsuit filed in Delaware Chancery Court.
Kotick’s departure would have caused banks involved in the deal to pull their financing, Pacchia’s attorneys said in the complaint.
After completing the buyout of most of the Vivendi stake in October, Activision had the freedom to consider acquisitions and growth opportunities without the uncertainty of a struggling parent, analysts said. The buyout closed a day after the Delaware Supreme Court said a shareholder vote on the transaction wasn’t required.
Maryanne Lataif, an Activision spokeswoman, didn’t immediately reply to a call and an e-mail seeking comment on claims that Kotick threatened to quit.
The Vivendi buyout will allow Activision, which also makes the online game “World of Warcraft,” to pursue expansion opportunities in China and other markets, Kotick said earlier this year. Activision last month posted third-quarter profit that beat analysts’ forecasts. Adjusted revenue of $657 million topped analysts’ projections of $593.4 million.
Kotick made a push to buy out the majority of Vivendi’s Activision stake this year after the Paris-based conglomerate sought to reduce its $17 billion debt load.
Some of Kotick’s fellow Activision directors weighed making a public debt or equity offering as part of the repurchase of the Vivendi stake. Instead, the CEO put together an investment group, including Activision director Brian Kelly, to buy the part of the Vivendi stake that would have been offered to the public, according to the Oct. 29 court filing in Pacchia’s case.
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 part of the Vivendi stake, according to the filing. The CEO said the board “could terminate him if they so chose” over his refusal to consider a public offering.
The board bowed to Kotick’s demands and his investment group, which included Chinese video-game publisher Tencent Holdings Ltd. (700), Davis Advisors and Leonard Green & Partners, wound up owning about 25 percent of Activision’s stock, making it the largest investor group. Vivendi still owns about 11 percent of the video-game maker’s shares.
The buyout was in danger of falling apart after a Delaware judge blocked the purchase of Vivendi’s stock, finding shareholders challenging the deal were entitled to vote on the transaction. The state’s highest court overturned that ruling Oct. 10, clearing the way for the buyout.
Pacchia and other Activision shareholders who sued Kotick and other board members over the Vivendi buyout contend he and Kelly “negotiated a transaction in their mutual best interests, without regard for superior alternatives available to the company,” according to Pacchia’s complaint.
Kotick and Kelly violated their legal duties to Activision shareholders by structuring a “self-dealing transaction in which they paid a discounted price, obtained working control and usurped a corporate opportunity,’” Pacchia’s lawyers argue in the filings.
The case is In re Activision Blizzard Inc. (ATVI) Stockholder Litigation, 8884, Delaware Chancery Court (Wilmington).
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