BREAKINGVIEWS-Activision investors may lose even in victory

Tue Oct 1, 2013 10:39pm IST

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

By Reynolds Holding

NEW YORK, Oct 1 (Reuters Breakingviews) - Activision Blizzard (ATVI.O) investors may lose even in victory. The videogame maker's minority owners convinced a judge to block an $8.2 billion plan to buy out Vivendi (VIV.PA), potentially derailing a sensible transaction in the process. Activision is appealing and on Monday filed to put the matter to a shareholder vote. In the end, it will probably have to pay more to clinch the deal. Some fights for shareholder rights can be costly.

The consolidation suited investors, who added $1 billion to Activision's market value at announcement in July. The price negotiated to unwind the partnership was at a discount to where Activision shares were trading at the time, and the U.S. company also secured $676 million of net operating losses by buying the Vivendi subsidiary where they and the shares are housed.

The purchase of that subsidiary is turning out to be a stickier issue than expected. Activision's governing documents require shareholder approval of any "business combination," a broad concept the company assumed didn't apply. Arguing to the contrary, a single shareholder sued on behalf of himself and others. A Delaware judge ruled in their favor, saying Activision minority shareholders needed to approve the deal.

The decision rings true, technically. It also, however, reflects the unanticipated consequence of a provision created five years ago to protect Activision owners from new controlling shareholder Vivendi. Such legal wrinkles arise occasionally. In 2003, for example, the Taubman family nearly lost their upscale mall empire to a hostile suitor when they themselves wound up with a big enough stake in the company to violate a state law originally designed to ward off corporate raiders. Lawmakers eventually stepped in.

For Activision, the vote now being sought would probably pass, but will be tough to pull off before the Oct. 15 deadline. An extension would require consent from, among others, Vivendi. At this stage, the French company could demand a higher price, knowing it also has the option of paying itself a one-time dividend from Activision instead if the deal collapses. Paying off shareholders is another possibility, however distasteful it may seem to buyers, including possibly Activision Chief Executive Bobby Kotick.

There's also Activision's appeal slated for Oct. 10. While reversals are uncommon, it's not obvious shareholders will benefit from the original decision as much as lawyers representing the plaintiffs. That's why more than 90 percent of corporate acquisitions now get challenged in court. Then again, to paraphrase Churchill, shareholder democracy may be the worst form of governance – except for the alternatives.

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CONTEXT NEWS

- Activision Blizzard on Sept. 30 filed a proxy statement calling for a shareholder vote on the videogame maker's deal to buy out majority stock owner Vivendi for $8.2 billion.

- The filing comes 10 days after Delaware Chancery Court judge Travis Laster ruled in favor of a suit brought by a shareholder who argued that the stock purchase qualified as a business combination under Activision's certificate of incorporation and required approval by minority shareholders. The company is scheduled to make its case on Oct. 10 to the Delaware Supreme Court for overturning the judge's decision.

- As part of the transaction, an investor group led by Activision Chief Executive Bobby Kotick and co-Chairman Brian Kelly will buy about 172 million company shares from Vivendi for $2.3 billion.

- The deal is scheduled to close on Oct. 15.

- Activision preliminary proxy statement: link.reuters.com/vyk53v

- Reuters: Appeal of Activision-Vivendi ruling to be heard Oct. 10 [ID:nL2N0HJ1UM]

- For previous columns by the author, Reuters customers can click on [HOLDING/]

(Editing by Antony Currie and Martin Langfield)

((reynolds.holding@thomsonreuters.com)(Reuters messaging reynolds.holding.thomsonreuters.com@reuters.net)) Keywords: BREAKINGVIEWS ACTIVISION/

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