Judge Rules Activision Executives Must Face Shareholder Lawsuit

A Delaware court has ruled that former executives of Activision Blizzard, including Chief Executive Bobby Kotick, must confront allegations linked to the company’s acquisition by Microsoft for $75.4 billion. Chancellor Kathaleen McCormick of the Delaware Chancery Court stated on Thursday that shareholders in a proposed class action lawsuit can proceed with their principal claim, asserting that Kotick and other members of Activision’s board breached their fiduciary duties.

The lawsuit, led by the Swedish pension fund Sjunde AP-Fonden, accuses Kotick of hastening the merger to secure his position and a significant package worth $400 million in change-of-control benefits. Furthermore, the shareholders contend that Kotick aimed to shield himself from allegations concerning widespread sexual harassment within the company. They argue that the agreed price of $95 per share was inadequate, especially as Activision’s performance improved during the lengthy 21-month regulatory approval period, culminating in the merger’s completion in October 2023.

Allegations of Manipulation and Breach of Duty

In her 83-page ruling, McCormick found sufficient grounds for the allegations that Kotick manipulated the sale process to the advantage of Microsoft, which was perceived as a reliable partner offering expedited deal certainty and a favorable outcome for Kotick. The Chancellor also noted that it is reasonably conceivable that the Activision board prioritized Kotick’s interests over those of the shareholders, particularly by accepting a lower takeover price while the company faced scrutiny over harassment claims that negatively impacted its stock value.

The court dismissed allegations that Microsoft had aided or abetted the alleged breaches of duty, even though the company, headquartered in Redmond, Washington, may have “passively stood by” during the events in question. Additional claims against the Activision executives were also thrown out by McCormick.

Next Steps in the Legal Battle

“Litigation on the merits of a trimmed-down version of the plaintiff’s complaint can now launch,” McCormick wrote, signaling the continuation of this legal battle. The phrase “Game on” encapsulated her decision, hinting at the intense scrutiny that will follow.

As of now, legal representatives for both the defendants and Microsoft have not responded to requests for comments. The shareholders’ legal team also remained silent on similar inquiries. The case is officially recorded as Sjunde AP-Fonden v Activision Blizzard Inc et al, Delaware Chancery Court, No. 2022-1001.

This ruling marks a significant development in the ongoing scrutiny of corporate governance practices, particularly in high-stakes mergers and acquisitions that have far-reaching implications for shareholders and company leadership.