Shareholders sue to halt Activision sale to Microsoft

Shareholders in Los Angeles and New York sued to block Activision Blizzard's $68.7 billion sale to Microsoft, claiming not enough information has been provided to determine whether company officers have a conflict of interest to enrich themselves at the expense of investors.

Activision responded in an email regarding the Los Angeles lawsuit: "We disagree with the allegations made in this complaint and look forward to presenting our arguments to the court."

Beverly Hills firm Brodsky & Smith LLP, which has filed several lawsuits against companies over the past few years, arguing that they have violated transparency and full disclosure requirements under California's Proposition 22, is representing the plaintiff in the lawsuit filed in federal court in Los Angeles.

In the filing on Thursday, partner Evan J. Smith alleged violations of the Securities Exchange Act of 1934 such as breach of fiduciary duty, saying that not providing the requisite information to detect conflicts of interest makes the transaction "unfair for a number of reasons."

The complaint alleges that current directors and executive officers of Activision Blizzard including CEO Bobby Kotick and other members of the board have "entered the proposed transaction to procure for themselves and senior management of the company significant and immediate benefits," including golden parachutes. Kyle Watson v. Activision Blizzard Inc. et al., 2:22-cv-01268 (C.D. Cal., filed Feb. 24, 2022).

These golden parachute packages were not made public to the plaintiff "in an effort to solicit the plaintiff to vote his Activision shares in favor of the proposed transaction," Smith wrote, in conjunction with Ryan P. Cardona, also of Brodsky & Smith. The company's preliminary statements "fail to adequately disclose communication regarding the post-transaction employment," which "is necessary for plaintiff to understand the potential conflicts of interest of management and the board."

After the Watson lawsuit was filed and made public, a shareholder in New York filed a similar one. Shiva Stein, described by Reuters as the second most prolific securities plaintiff in the U.S., brought up several of the same concerns and claimed the disclosure behind the deal "isn't good enough." Stein v. Activision Blizzard, Inc. et al., 1:2022cv01560 (S.D.N.Y., filed Feb. 24, 2022). Stein is represented by Gloria Melwani of Melwani & Chan LLP in New York.

None of the plaintiffs' attorneys were available for comment on Monday. The case has been assigned to U.S. District Judge John A. Kronstadt and U.S. Magistrate Judge Patricia Donahue.

Watson's filing alleges that Activision insiders have a conflict of interest because they negotiated company stock, options, and equity awards they can access once the deal is approved. If the deal proceeds, there will be payouts for $14.6 million to Kotick, $25.4 million to chief financial officer Armin Zerza and $29.1 million to chief operating officer Daniel Alegre, the lawsuit states.

Watson wants to block the transaction between Microsoft and the maker of "Call of Duty" and "World of Warcraft" until the violations are either addressed, or damages are awarded based on "a fair and accurate assessment of the value of the transaction."

"The proposed transaction is not in the best interests of Activision, plaintiff or company stockholders, [but] will produce lucrative benefits for the company's offices and directors," concludes the complaint.

Microsoft announced its intent to acquire Activision on Jan. 18, which would turn the technology giant into the third-largest video game company in the world by revenue right behind the Chinese company Tencent and Japan's Sony, creator of the PlayStation console.

The Activision Blizzard sale was already under heavy scrutiny by the Securities and Exchange Commission as the biggest transaction in the history of the video game industry before the shareholder lawsuits were filed.

Activision Blizzard had not filed a response nor identified attorneys handling the lawsuits as of Monday afternoon.

The video game creator is also being sued in a separate action by the California Department of Fair Employment and Housing, alleging negligence in handling sexual harassment and discrimination reports. DFEH v. Activision Blizzard et al., 21STCV26571 (L.A. Super. Ct., filed July 20, 2021).