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A new lawsuit filed in Delaware alleges that embattled Activision CEO Bobby Kotick ignored misconduct at the company and that the publisher's $70 billion acquisition deal with Microsoft would allow Kotick to "escape liability and accountability entirely."
As Axios first reported, the complaint was jointly filed on April 26 (public version filed May 2) by the New York City Employees' Retirement System together with pension funds for the city fire department and police, as well as the board of education and teachers' retirement systems. This might seem like an odd group of plaintiffs, but these groups own stock in Activision, hence their allegations that actions from company executives, including Kotick, hurt the company's value.
The complaint notes that "fortunately for Kotick," his negotiations with Microsoft "began only three days after the Wall Street Journal's revelatory disclosure"
The complaint claims that Activision failed to submit all requested records following a Section 220 Demand – a legal route within Delaware's Court of Chancery allowing invested parties to request access to books and documents – and that Kotick specifically "was aware of numerous credible allegations of misconduct" at the company "but did nothing to address them or prevent further offenses."
Furthermore, these groups claim that while "Kotick therefore faced a strong likelihood of liability for breaches of fiduciary duty, together with other members of the Board," the company's deal with Microsoft, which was negotiated by Kotick, would allow him "to escape liability and accountability entirely." Additionally, the complaint notes that "fortunately for Kotick," his negotiations with Microsoft "began only three days after the Wall Street Journal's revelatory disclosure" reporting on his role in shielding executives from consequences.
"Worse, despite his potential liability for breaches of fiduciary duty, the Board allowed Kotick himself to negotiate the transaction with Microsoft," the complaint continues. "The Board’s decision to entrust Kotick with the negotiation process is inexcusable for the additional reason that Kotick stands to personally receive substantial material benefits whose value is not directly aligned with the Merger price," it adds, referring to the hefty payout that Kotick would receive following the completion of the Microsoft merger.
Activision Blizzard shareholders approved the Microsoft buyout in a near-unanimous 98% vote just last week. However, the fate of the proposed merger remains uncertain in the wake of falling Activision stock and a direct review from the FTC – a break from tradition which was supported by multiple US senators.
The financial factor underlining the complaint is tied to the share value accepted in the Microsoft deal. This complaint claims that, at $95 per share, the deal "appears to seriously undervalue Activision" as this price "represents a mere 1% premium" over what it was trading at before the company was hit with the initial California lawsuit in July 2021. It also notes that the merger would squash the group's "lucrative derivative claims" against the Activision board, citing its original Section 220 Demand.
These plaintiffs say they began investigating Activision in October 2021 and filed an initial Section 220 Demand the same month. The 107 documents eventually produced in response to this demand "suggested that the Board faced a strong likelihood of liability for breaches of fiduciary duty," the complaint says, and further corroborated claims that allegations against the company's senior executives had been ignored. It specifically mentions former Activision CTO Ben Kilgore, former senior manager of global business strategy and operations Tyler Rosen, and senior executive Alex Afrasiabi, who has been repeatedly tied to Activision Blizzard's "now-infamous 'Cosby Suite,'" as the complaint puts it.
You can read the full lawsuit, contributed by Axios, here.
This complaint is only the latest in a growing line of Activision Blizzard lawsuits and investigations.
