(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.
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- 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
- 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)
Keywords: BREAKINGVIEWS ACTIVISION/
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