Call of Duty publisher Activision is facing a legal complaint regarding its plan to buyback billions in stock from majority shareholder Vivendi.
Activision shareholder Todd Miller filed a derivative complaint against Activision, Vivendi, and Activision’s 11-person board of directors for breach of fiduciary duties, waste of corporate assets, and unjust enrichment, according to Entertainment Law Digest.
On July 26, Activision enacted a plan to buy back 439 million shares for $5.83 billion from Vivendi. An investor group, led by Activision chief executive Bobby Kotick and chairman Brian Kelly, purchased an additional 172 million shares for $2.34 billion. That’s a 10 percent discount on the price the stock closed at on July 25.
“Upon closing of the deal, the insider investor group will become the company’s largest shareholder, holding approximately 172 million shares, or approximately 24.9 percent of the outstanding common stock,” reads Miller’s complaint.
The shareholder’s main issue is that a group of insiders were able to snatch up so many Activision shares for 10 percent cheaper than anyone else.
“There was no apparent business purpose in allowing the insider investor group to participate in the discounted stock offering, other than to aggrandize defendants Kotick and Kelly and provide billions of dollars’ worth of Activision stock to the insider investor group at a discounted price.”
Miller also believes this deal will give Kotick and Kelly the power to “usurp” the publisher and “entrench” themselves in “positions of power atop Activision.”
A shareholder derivative suit is a legal action in which a shareholder sues in the name of the corporation because the corporation refuses to sue. In this case, Activision would clearly not want to sue. The complaint alleges that Activision acted inappropriately on behalf of its shareholders.
We’ve reached out to Activision for comment. We’ll update this story with its response.
Following the July 26 deal, Kotick said the buyback deal would make Activision a stronger company.
“These transactions together represent a tremendous opportunity for Activision Blizzard and all its shareholders, including Vivendi,” said Kotick. “We should emerge even stronger—an independent company with a best-in-class franchise portfolio and the focus and flexibility to drive long-term shareholder value and expand our leadership position as one of the world’s most important entertainment companies. The transactions announced today will allow us to take advantage of attractive financing markets while still retaining more than $3 billion cash on hand to preserve financial stability.”
Miller is asking that the court dismiss the buyback agreement and compel Activision to create controls that would “prevent future one-side self-dealing.”
Activision is one of the biggest video game publishers in the world. In addition to Call of Duty, the company is also responsible for Skylanders and World of Warcraft.