Saturday, January 22, 2022
This week, it was announced that Microsoft is acquiring Activision.
It was also announced that Microsoft swooped in with a bid because Activision was wounded due to the sexual harassment scandals, which are already the subject of a securities fraud lawsuit and a couple of derivative lawsuits.
And, it is possible that Activision’s CEO – who, it was reported, was aware of/involved in many of Activision’s problems and concealed them from the board – will, as a result of merger, walk away with a change of control golden parachute worth as much as $293 million.
So, this is entertaining for me because it’s like a real life issue spotter.
Issue One: What happens to the ongoing securities fraud lawsuit?
Answer: Presumably it continues; liability will travel with the new entity, and of course will remain with any individual defendants.
Issue Two: What happens to the ongoing derivative lawsuits?
Answer: Normally, if the plaintiffs lose their shares in the merger, they lose the ability to prosecute a derivative action. But! They might be able to maintain the action if they can show the sole purpose of the deal was to deprive them of standing. See Lewis v. Anderson, 477 A.2d 1040 (Del. 1984). I don’t know if the Activision deal meets that high standard, but the reporting is certainly fraught.
Issue Three: What merger related claims are plaintiffs likely to advance directly?
(1) They could allege that Kotick ran a flawed sales process so that he could cash out rather than suffer the indignity of being fired, and the board was only too happy to acquiesce and shed themselves of the bother. As a result, the merger price was too low.
(2) They could also allege that the board failed to secure value for the lost derivative claims, and therefore the merger price was too low.
Issue Four: Isn’t it funny how the class plaintiffs and the derivative plaintiffs are at cross purposes, because if the derivative plaintiffs can maintain standing (a longshot, but still), it kind of interferes with the class plaintiffs’ allegations that the merger consideration failed to account for the value of the lost derivative claims (which are not, by hypothesis, lost at all)?
Issue Five: Are there any other potential derivative claims here?
Answer: Someone might consider the option of a double derivative lawsuit, i.e., suing Microsoft to get it to sue the old Activision board on behalf of Activision. See Lambrecht v. O'Neal, 3 A.3d 277 (Del.2010).
Issue Six: Could Activision just go ahead and quickly settle the derivative claims, to spare some of the headache?
Answer: I suppose but –
Issue Seven: Wouldn’t the objections to that settlement be convoluted, because if you tried to say the derivative plaintiffs were settling on the cheap, the answer would be that they were about to lose their claims anyway, so any number above zero was fair – and the real injury would be to the class plaintiffs in the merger, who may or may not have standing to object depending on whether the cheap derivative settlement was deemed some kind of improper diversion of merger consideration, permitting a direct claim, in facts that were distinguishable from Kramer v. Western Pacific Industries, Inc, 546 A.2d 348 (Del.1988) because the transactions were more closely related?
Issue Eight: Will the merger close, and defendants secure a dismissal of merger-related claims on Corwin grounds?
Okay, internet: What did I miss?