Activision, Microsoft Deal Fight Centers on ‘Broad’ Delaware Law

Attorneys for Microsoft Corp. and Activision Blizzard Inc. defended the biggest acquisition in the video game industry—only recently completed due to lengthy regulatory disputes—saying Delaware’s requirements for such a merger are broad and flexible.

At the heart of the dispute is the three-part state statute governing mergers of Delaware corporations, known as Section 251.

Activision’s $69 billion merger with Microsoft satisfies the “broad, flexible statute,” one of Activision’s attorneys, Edward Micheletti of Skadden Arps, Slate, Meagher & Flom LLP, told the chief judge of the Delaware Court of Chancery on Thursday.

“Unquestionably, Activision hit all three of these broad requirements,” with its board adopting a resolution authorizing Activision to enter into the merger agreement, executing the merger agreement with a clearly set share price, and holding a stockholder meeting where stockholders overwhelmingly approved the merger agreement, he said.

The Swedish state-run pension fund challenging the merger in court argues the statute’s precise words “are mandatory, not broad and enabling,” said one of the fund’s attorneys, Michael Hanrahan of Prickett, Jones & Elliott PA.

“It gives specifics about how you effect a valid merger,” which Activision and Microsoft failed to do, he said.

For example, a July 18 letter agreement setting the termination date of the merger for mid-October violated Delaware statute “in multiple ways” because it amended an agreement from January 2022 without board or stockholder approval, said Stacey Greenspan, also of Prickett, Jones & Elliott, another one of the pension fund’s attorneys.

Microsoft shouldn’t have to face the pension fund’s claim that the merger violated Delaware law because the allegations all relate to actions taken by Activision’s board, said Microsoft’s attorney, Stephen Blake of Simpson Thacher & Bartlett LLP.

“I think it’s fair to say Microsoft was not in the Activision board room,” he said.

The hearing in Wilmington, Del., focused on the first count of the amended complaint filed in early 2023. It didn’t address remaining counts of the complaint alleging breaches of fiduciary duty by Activision’s directors and CEO or aiding and abetting claim against Microsoft.

Chancellor Kathaleen St. Jude McCormick adjourned the hearing without ruling on the pension fund’s motion for partial summary judgment or on Activision’s and Microsoft’s motions to dismiss.

Lawsuit’s Claims

Microsoft completed the merger in mid-October, after a nearly two-year fight with global regulators.

The UK’s Competition and Markets Authority approved the deal after accepting a restructuring plan involving selling some gaming rights to French publisher Ubisoft Entertainment SA. The US Federal Trade Commission lost its attempt to block the transaction in federal court but continues to pursue legal action in an administrative hearing that could force the two companies to unwind or change the deal.

It’s the biggest-ever acquisition in the video game industry, and it gives the maker of Xbox consoles a boost in mobile gaming. Activision’s game portfolio includes Candy Crush, Call of Duty, Guitar Hero, Tony Hawk’s Pro Skater, and World of Warcraft.

The pension fund claims the $69 billion merger, announced in January 2022, was rigged to exploit the beleaguered gaming giant’s sexual harassment crisis and protect its CEO, Bobby Kotick.

Kotick faced criticism for his handling of harassment complaints at Activision Blizzard. Microsoft’s gaming chief, Phil Spencer, has said Kotick would stay on as chief executive of Activision Blizzard through the end of the year, reporting to him.

Since the deals’ closure in mid-October, Activision has faulted the pension fund for its failure “to amend its complaint to reflect the reality of the pending transaction,” while the fund has said the defendants “simply seek to create strategic delay to avoid an adverse decision.”

Because the fund “filed suit during ongoing regulatory review, many of its allegations were premised solely on speculation about future events,” Activision and Kotick said in a September brief.

Microsoft is represented by Young Conaway Stargatt & Taylor LLP and Simpson Thacher & Bartlett LLP. Activision and Kotick are represented by Skadden, Arps, Slate, Meagher & Flom LLP. The fund is represented by Prickett, Jones & Elliott PA, and Kessler Topaz Meltzer & Check LLP.

The case is Sjunde AP-Fonden v. Activision Blizzard Inc., Del. Ch., No. 2022-1001, hearing 11/30/23.