Activision Blizzard investors may lose even in victory. The video game maker’s minority owners convinced a judge to block an $8.2-billion (U.S.) plan to buy out Vivendi, 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 favour, 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 officer 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 per cent 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.