Activision Stock Sale Blocked by Judge Over Investor Vote

Activision Blizzard Inc. was barred by a judge from proceeding with a stock sale that investors say would give control of the video-game maker to a group led by a company director and its top executive.

Activision officials must hold a shareholder vote on the proposed sale of $2.34 billion in company stock to a group led by director Brian Kelly and Bobby Kotick, Activision’s chief executive officer, before the deal can be completed, a Delaware Chancery Court judge in Wilmington ruled yesterday, Activision officials said in a statement.

“Activision Blizzard remains committed to the transaction and is exploring the steps it will take to complete the transaction as expeditiously as possible,” the company said in the statement.

In July, Activision announced it would buy back $5.83 billion of its shares from Vivendi SA, while a group including Kelly, Kotick and Shenzhen, China-based game maker Tencent Holdings Ltd. will pay $2.34 billion to acquire shares in the company also held by the French company. The sale would reduce Vivendi’s stake in the world’s biggest video-game publisher from 61 percent to 12 percent, according to court filings.

Judge Travis Laster said yesterday in court, according to a transcript, that he is requiring that the deal to be approved by shareholders other than Vivendi.

Bottom Line

“To give you the bottom line up-front,” Laster told lawyers, according to a transcript, “The defendants are enjoined from proceeding with the transactions contemplated by the stock purchase agreement pending, one, trial on the merits; two, receipt of a favorable stockholder vote; or three, a modification of the injunction by this court” or, a ruling on appeal from the Delaware Supreme Court.

If the sale is completed, Kotick’s investor group will emerge as Santa Monica, California-based Activision’s biggest shareholder with a 25 percent stake, according to court filings.

“The net effect of this injunction is potentially delaying rather than jeopardizing the deal,” Colin Sebastian, an analyst with Robert Baird in San Francisco, said in an e-mail.

Activision fell 1 cent to $17.15 in New York yesterday and its shares remained unchanged after regular trading hours. Vivendi added 0.4 percent to 17.53 euros at 9:10 a.m. in Paris.

Activision Blizzard was the result of a 2008 merger after Vivendi agreed to contribute its $8.1 billion video-game business and pay $1.7 billion in cash in exchange for control of the entity it combined with Activision Inc. to surpass Electronic Arts Inc., the market leader at the time.

Executives’ Shares

An Activision shareholder sued Sept. 11 in Chancery Court, arguing the company’s board breached its legal duty to investors by approving the purchase of the 172 million shares now held by Vivendi. He asked Laster to block the stock sale, according to court filings.

Given Activision shares already held by company executives, the acquisition of Vivendi’s stake would allow Kotick’s and Kelly’s group to exercise control of the company, according to the shareholder’s suit.

Edward Micheletti, an attorney for Activision, and Michael Hanrahan, a lawyer for the lawsuit plaintiffs, didn’t immediately return phone and e-mail messages yesterday after regular business hours seeking comment on the ruling.

In a letter to Laster, Hanrahan argued that under Activision’s incorporation papers, the stock purchase agreement is “a merger, business combination” involving Activision and Vivendi, and “requires approval” by a majority vote.

Share Buyback

Micheletti countered in a letter to the judge that “Activision will be accounting for the stock purchase as a share buyback, not as a business combination.”

In court, Laster said the stock-purchase agreement has a termination date of Oct. 15 and that after that, any party may elect to terminate it.

The transaction “is precisely the type of thing that common sense would dictate” needs a vote, the judge said. “It could be a good deal, it could be a bad deal; they get to decide.”

The case is Hayes v. Activision, CA8885, Delaware Chancery Court (Wilmington).

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