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In re Activision Blizzard, Inc. Stockholder Litigation

Court of Chancery of Delaware, New Castle

May 20, 2015


Submitted March 4, 2015.

Joel Friedlander, Jeffrey M. Gorris, FRIEDLANDER & GORRIS, P.A., Wilmington, Delaware; Jessica Zeldin, ROSENTHAL, MONHAIT & GODDESS, P.A., Wilmington, Delaware; Lawrence P. Eagel, Jeffrey H. Squire, BRAGAR EAGEL & SQUIRE, PC, New York, New York; Attorneys for Plaintiff.

Raymond J. DiCamillo, Susan M. Hannigan, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Joel A. Feuer, Michael M. Farhang, Alexander K. Mircheff, GIBSON, DUNN & CRUTCHER LLP, Los Angeles, California; Attorneys for Defendants Vivendi S.A., Philippe Capron, Fré dé ric Cré pin, Ré gis Turrini, Lucian Grainge, Jean-Yves Charlier, and Jean-Franç ois Dubos.

R. Judson Scaggs, Jr., Shannon E. German, MORRIS, NICHOLS, ARSHT & TUNNELL, Wilmington, Delaware; Robert A. Sacks, Diane L. McGimsey, SULLIVAN & CROMWELL LLP, Los Angeles, California; William H. Wagener, SULLIVAN & CROMWELL LLP, New York, New York; Attorneys for Defendants Robert A. Kotick, Brian G. Kelly, ASAC II LP, and ASAC II LLC.

Garrett B. Moritz, Eric D. Selden, ROSS ARONSTAM & MORITZ LLP, Wilmington, Delaware; William Savitt, Ryan A. McLeod, Benjamin D. Klein, WACHTELL, LIPTON, ROSEN & KATZ, New York, New York; Attorneys for Defendants Robert J. Corti, Robert J. Morgado, and Richard Sarnoff.

Edward P. Welch, Edward B. Micheletti, Sarah Runnells Martin, Lori W. Will, SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, Wilmington, Delaware; Attorneys for Nominal Defendant Activision Blizzard, Inc.


LASTER, Vice Chancellor.

Anthony Pacchia (the " Lead Plaintiff" ) and his attorneys (" Lead Counsel" ) challenged a transaction in which Vivendi S.A. divested its controlling equity position in Activision Blizzard, Inc. (" Activision" or the " Company" ). The transaction restructured Activision's governance profile and stockholder base, so this decision calls it the Restructuring.

Shortly before trial, the parties entered into what this decision refers to as the Settlement. In exchange for a global release of all claims relating to the Restructuring, the defendants agreed to (i) pay $275 million to Activision, (ii) reduce a cap on the voting power wielded by Activision's two senior officers from 24.5% to 19.9%, and (iii) expand Activision's board of directors (the " Board" ) to include two independent individuals unaffiliated with the two senior officers.

When Lead Counsel sought court approval for the Settlement, three objectors appeared. Douglas Hayes, who previously sought the lead plaintiff role, lodged the only objection to the Settlement itself. Hayes did not argue that he could have extracted more monetary or non-monetary consideration from the defendants. He rather complained that the Settlement did not allocate any consideration to Activision's stockholders as a class, and he complained most about its failure to provide any consideration to former stockholders who sold their shares. Joint objectors Milton Pfeiffer and Mark Benston did not object to the Settlement. They sought a fee award for their counsel.

This decision approves the Settlement, awards $72.5 million to Lead Counsel, and authorizes Lead Counsel to make a $50,000 payment to the Lead Plaintiff from their award. It denies any fee award to Pfeiffer and Benston's counsel.


The facts are drawn from the allegations of the Verified Fifth Amended Class and Derivative Complaint (the " Complaint" ), which was the operative pleading at the time of the Settlement, and from the affidavits and supporting documents submitted in connection with the application court approval. Lead Counsel filed the Complaint two months before trial, after completing discovery. The pleading is lengthy, detailed, and contains quotations from the defendants' internal documents and depositions. The Complaint's contents provide a sound basis for evaluating the Settlement, because its allegations present Lead Counsel's claims in the strongest possible light. After trial, once the defendants introduced competing evidence, Lead Counsel's case could only become weaker. If the Settlement is adequate when judged against the allegations of the Complaint, then it should compare favorably to the range of potential outcomes post-trial. What follows are not formal factual findings, but rather how the court regards the record for purposes of evaluating the Settlement.

A. The Parties

Nominal defendant Activision is a Delaware corporation with its headquarters in Santa Monica, California. Its stock trades on Nasdaq under the symbol " ATVI." Activision is a leading player in the interactive entertainment software industry and one of the largest video game publishers in the United States.

Defendant Vivendi is a société anonyme organized under the laws of France with its headquarters in Paris. Vivendi is a multinational media and telecommunication company that operates in the music, television, film, publishing, Internet, and video games sectors. Before the Restructuring, Vivendi owned 683,643,890 shares of Activision common stock, representing 61% of the outstanding shares. Vivendi also had the right to appoint six members to Activision's eleven-member Board.

Individual defendants Philippe Capron, Frédéric Crépin, Régis Turrini, Lucian Grainge, Jean-Yves Charlier, and Jean-Franç ois Dubos were the Vivendi designees on the Board who voted in favor of the Restructuring. Individual defendants Robert Kotick, Brian Kelly, Robert Corti, Robert Morgado, and Richard Sarnoff were the other five members of the Board who voted in favor of the Restructuring. Corti, Morgado, and Sarnoff were outside directors. Kelly was Chairman of the Board. Kotick served as Activision's CEO.

Defendant ASAC II LP (" ASAC" ) is an entity that Kotick and Kelly formed to participate in the Restructuring. ASAC is an exempt limited partnership established under the laws of the Cayman Islands. ASAC's general partner is ASAC II, LLC (" ASAC GP" ), a Delaware limited liability company. Kotick and Kelly are the managers of ASAC GP. Through ASAC GP, Kotick and Kelly control ASAC.

B. The Impetus For The Restructuring

In 2012, Vivendi was burdened with over $17 billion in net debt and needed liquidity. Vivendi's CEO informed Kotick that given its financial situation, Vivendi wanted to explore strategic alternatives for Activision.

The Board retained JP Morgan to provide advice about strategic alternatives. After evaluating a range of possibilities, JP Morgan identified two that would be attractive to both Vivendi and Activision's unaffiliated stockholders: selling Activision to a third party or having Activision redeem Vivendi's equity. JP Morgan advised that Activision could redeem nearly 80% of Vivendi's stake using $1.4 billion of Activision's available domestic cash plus $5.5 billion of new third-party debt. JP Morgan advised that the balance of Vivendi's stake could be monetized through a secondary offering or by selling it to a financial investor.

JP Morgan identified two strategic alternatives that would achieve Vivendi's liquidity needs but would not be attractive to Activision's unaffiliated stockholders: a debt-financed special dividend or a sale of Vivendi's shares to a third party. The former would limit Activision's strategic flexibility without reducing Vivendi's ownership stake. The latter would substitute one controlling stockholder for another.

C. Kotick And Kelly See An Opportunity.

In July 2012, Vivendi announced its interest in selling its Activision stake. In August, Kotick and Kelly began pursuing a transaction that would benefit themselves. They prepared a pitch book to raise $2-3 billion for an investment vehicle that would buy 38-44% of Activision. They presented the idea to Peter Nolan, then the Managing Partner of Leonard Green & Partners, L.P. (" Leonard Green" ). They also approached other parties with whom Activision had relationships, including Activision's strategic partners in China. The independent directors were unaware of Kotick and Kelly's efforts.

In December 2012, Vivendi's CEO informed Kotick that Vivendi's discussions with third parties about its Activision stake had not panned out. Vivendi's CEO stated that at the next meeting of the Board, the Vivendi representatives would propose a special dividend of roughly $3 billion to be funded with cash on hand and new debt.

JP Morgan prepared a presentation analyzing the special dividend. JP Morgan opined that the special dividend " will almost certainly destroy significant value to shareholders" and justified " increased investor concerns about potentially diverging interests between [Vivendi] and [Activision]." JP Morgan recommended a full repurchase of Vivendi's stake in three parts: (i) the majority repurchased by Activision using cash and debt, (ii) $2-3 billion acquired by investors " supportive of management," and (iii) a marketed secondary offering of the balance of Vivendi's stake. JP Morgan stated that it was " highly confident" that the transaction could be carried out.

On January 29, 2013, Kotick and Kelly submitted an informal proposal to Vivendi that contemplated Vivendi selling its entire Activision stake for $9 billion (a price representing a 15% premium to market) with Activision buying the majority and an investor group led by Kotick and Kelly purchasing the balance. Vivendi asked for more specifics, and on February 14, Kotick and Kelly formally proposed a two-part transaction in which (i) Activision would repurchase two-thirds of Vivendi's stake for $6 billion, or $13.15 per share, using $4.7 billion in financing provided by JP Morgan and $1.3 billion in cash, and (ii) an investment vehicle controlled by Kotick and Kelly would purchase the remaining third for $3 billion at the same price per share. Kotick and Kelly stated that they were " highly confident" that they could raise the money. They attached a letter from Leonard Green expressing its willingness to invest up to $1 billion in their vehicle.

At a Board meeting on February 14, 2013, Kotick informed the independent directors about the proposal and asked that the Board form a special committee (the " Committee" ) to oversee the transaction process. JP Morgan delivered a presentation advising that Activision could support up to $5.88 billion in debt and maintain a B bond rating. Activision had no debt at the time, so the full amount could be used to repurchase shares from Vivendi.

The Board formed the Committee, comprising directors Corti, Morgado, and Sarnoff. The resolution creating the Committee gave it broad authority, including the ability to contact potential investors and to explore, initiate, and negotiate alternative transactions. The resolution provided that the Committee would remain in existence " until such time as the full Board concludes that no Potential Transaction is likely to occur or the existence of the Committee is no longer required." The Committee retained Centerview Partners, LLC (" Centerview" ) as its investment advisor.

During a meeting on March 18, 2013, the Committee resolved to

take care that in pursuing the proposed transaction to eliminate the current control shareholder ( i.e., [Vivendi]), it should not create another shareholder or shareholder group with control or elements of control over the Company nor should it put the Company in a position where a new shareholder or shareholder group could exercise influence to the disadvantage of other shareholders.

Through Centerview, the Committee learned that Vivendi was open to disposing of part of its stake through a secondary offering and retaining a small position in Activision.

On April 3, 2013, Centerview recommended preliminarily that Activision repurchase Vivendi's controlling interest. Centerview observed that if Activision borrowed $5.9 billion and used its overseas cash, a full buyout of Vivendi would require only $2 billion of additional capital. Centerview believed that Activision could raise $1 billion of public equity and $2 billion from convertible securities. Centerview advised that Kotick and Kelly's proposal ran the risk that " a strong minority will have disproportionate influence in [the] Board room and [in] shareholder votes." Vivendi's willingness to pursue a secondary offering and retain a small position in Activision made it feasible for Activision to accomplish a restructuring without Kotick and Kelly.

On April 29, 2013, the Committee approved a proposal for Activision to repurchase $5.9 billion of Vivendi's stake at $13.15 per share, with the balance of Vivendi's shares to be addressed by one or more of the following methods: (i) a secondary offering, (ii) a sale to an entity controlled by Kotick and Kelly, or (iii) retention by Vivendi under appropriate governance arrangements. On May 2, the Committee discussed Kotick and Kelly's proposal and expressed the view that " a transaction should not create a new shareholder or shareholder group with control or substantial elements of positive or negative control over the company."

On May 7, 2013, Kotick met with Centerview. Kotick argued that a secondary offering would hurt Activision's stock price. This assertion was contrary to Centerview's view. It also conflicted with what Centerview understood to be the opinion of JP Morgan, the Company's financial advisor who was now assisting Kotick and Kelly, as well as the opinions of Goldman Sachs and Barclays, who were advising Vivendi. Kotick opposed discussing Activision's debt financing capacity with credit agencies, citing the risk of leaks. Centerview disagreed. Kotick also argued that his proposal offered Vivendi the most efficient tax structure. This was contrary to what the Committee understood Vivendi's view to be. In addition to his discussions with Centerview, Kotick called the Committee's legal counsel and objected to the governance terms that the Committee wanted, including a cap on Kotick and Kelly's voting power at 9.9%.

In mid-May 2013, Vivendi told the Committee that it wanted to proceed quickly with either Kotick and Kelly's proposal or with a transaction involving a secondary offering. Vivendi informed the Committee that otherwise it would " engage in self-help." Certain governance restrictions on Vivendi would expire on July 9, making Vivendi's threat credible. Kotick contemporaneously told the Committee that a secondary offering was not feasible, and the Committee members became concerned that Kotick might resign if they did not support a deal on his terms. JP Morgan backed Kotick, telling Centerview that it would not lend if Kotick resigned. JP Morgan later became a joint lead arranger and bookrunner to ASAC.

On May 16, 2013, Kelly told the Committee that he and Kotick had dropped out of the transaction process. Meanwhile, Vivendi told Centerview that if no deal was reached by the end of the week, Vivendi would cause the Board to disband the Committee and move forward with a debt-financed special dividend.

On May 25, 2013, the Committee discussed Kotick and Kelly's positions and decided that a debt or equity offering " would not be actionable" without Kotick's support. The Committee again discussed the risk that Kotick would resign if Activision agreed to a transaction he did not like, as well as JP Morgan's refusal to finance a deal without Kotick. To avoid a special dividend--the worst possible outcome for Activision's unaffiliated stockholders--the Committee asked Vivendi to propose a transaction that included Kotick and Kelly.

On May 30, 2013, Vivendi expressed its support for any one of three alternatives:

o A purchase by Activision of $5.9 billion of Vivendi's shares at $13.60 per share with ASAC buying the rest at $14.80 per share.

o A purchase by Activision of all but $500 million of Vivendi's shares at $13.60 per share with Kotick and Kelly personally buying the remaining $500 million at $13.60 per share.

o A debt-financed special dividend.

The Committee provided these options to Kotick and told him that if he and Kelly did not pick one of them, then the Committee would have to decide between proceeding without them and disbanding. Kotick rejected all three and insisted on a transaction in which ASAC would acquire 24.9% of Activision's outstanding shares for $13.60 per share. Kotick stated that he would not cooperate with a debt or equity offering or any other transaction and that the Board could fire him if they wished.

In light of Kotick's ultimatum, the Committee concluded that Activision's only actionable choice was to give in. The Committee proposed to move forward as Kotick wanted, but to cap ASAC's voting rights at 19.9%. Kotick and Kelly rejected the cap and told the Committee that they would not participate except on their terms.

The Committee members determined that they could not support the repurchase structure without a cap on ASAC's voting rights at 19.9%. They sent a letter to Vivendi and ASAC suggesting that those parties negotiate directly between themselves.

On June 2, 2013, Vivendi sent a letter to the Committee that contemplated Activision buying $5.4 billion of Vivendi's shares at $13.60 per share with Kelly and Kotick personally buying shares worth $500 million at the same price. This reprised the second choice from Vivendi's list of three options. Because Kotick and Kelly would not support any deal except their own, the Committee did not respond to Vivendi.

At a Board meeting on June 6, 2013, Corti proposed disbanding the Committee, and the Board did so. Contrary to the resolution establishing the Committee, it did not disband because " no Potential Transaction [was] likely to occur or the existence of the Committee is no longer required." Given Vivendi's liquidity needs, a potential transaction remained a virtual certainty, just not on terms the Committee believed at the time that it could accept.

After the disbanding of the Committee, Vivendi negotiated with Kotick and Kelly. On July 9, 2013, they agreed on a term sheet that specified the number of shares that Activision would buy, the number of shares that ASAC would buy, and the purchase price--a 10% discount to market.

With the terms set, the Board reconstituted the Committee on July 11, 2013. The revivified Committee made some slight tweaks to the deal, including obtaining a term in a stockholders agreement between ASAC and Activision (the " Stockholders Agreement" ) that capped the voting power that Kotick and Kelly could exercise directly at 24.9%. The Committee recommended the deal to the Board, and the Board approved it.

D. Activision, Vivendi, And ASAC Announce The Restructuring.

On July 25, 2013, Activision, Vivendi, and ASAC entered into the transaction agreement that governed the Restructuring (the " Stock Purchase Agreement" ). In one major part of the transaction, ASAC agreed to purchase 171,968,042 shares of Activision common stock from Vivendi at $13.60 per share. The price represented a discount of 10% from to Activision's closing stock price on July 25, 2013.

In the other major part of the transaction, Activision purchased the shares of Amber Holdings Subsidiary Co. (" Amber" ), a newly formed subsidiary of Vivendi. Through a series of mergers called for by the Stock Purchase Agreement, Amber came to own 428,644,513 shares of Activision common stock and net operating losses (" NOLs" ) worth $676 million. In the Restructuring, Activision purchased the shares of Amber in exchange for $5.83 billion in cash.

Activision indisputably received significant benefits from the Restructuring. Amber brought NOLs worth $676 million, and Activision was able to purchase 428,644,513 shares of its common stock at 10% below the market price. That deal was even better than it sounded, because everyone expected that Activision's stock price would rise after the announcement of the transaction and its separation from cash-strapped Vivendi. It did. Activision's stock price closed at $17.46 per share on Friday, July 26, and at $18.27 per share on Monday, July 29. Equity analysts identified many positive aspects of the Restructuring, including (i) earnings accretion due to the favorable purchase price; (ii) the elimination of Vivendi's majority stake; (iii) the signaling effect of Kotick, Kelly, and Activision's Chinese strategic partner Tencent Holdings Limited (" Tencent" ) investing in Activision; (iv) Activision's lowered cost of capital from issuing debt; and (v) Activision's eligibility for inclusion in the S& P 500.

The problem with the transaction was not the lack of benefit to Activision, but rather the extraordinary benefits that Kotick and Kelly extracted for themselves. On the financial front, Kotick and Kelly invested $100 million in ASAC GP; ASAC's various co-investors provided over $1.62 billion. Under ASAC's limited partnership agreement, the returns to ASAC GP were tied to the overall gains on ASAC's $2.3 billion investment in Activision. ASAC's immediate unrealized gain at closing was $712.8 million, of which Kotick and Kelly's share was $178 million. Over the potential four-year lifespan of ASAC, Kotick and Kelly had enhanced upside and a protected downside:

o They would double their money if Activision's stock price remained at the post-announcement price of $17.46 per share.

o They would make nine times their money if Activision's stock price doubled from the post-announcement price to $35 per share. o They would lose nothing if Activision's stock price declined by 20% from its post-announcement price.

An illustration prepared by Kotick and Kelly's bankers for ASAC's outside investors projected that if ASAC liquidated on the third anniversary after the Restructuring, and ASAC sold its Activision shares for $27 per share, then Kotick and Kelly would receive profits of $586 million, or 5.9 times their invested capital for an IRR of 80.3%. Their co-investors in ASAC would receive 2.1 times their invested capital for an IRR of 28.4%.

On the control front, Kelly continued after the Restructuring as Chairman, and Kotick continued as CEO. They also served as managers of ASAC GP, giving them control over ASAC's entire block of shares. Kotick beneficially owned approximately 5.5 million shares, or roughly 0.8% of Activision's stock, and Kelly beneficially owned approximately 3.3 million shares, or roughly another 0.5%. Kotick and Kelly thus had direct control over shares representing 26% of Activision's voting power, although the Stockholders Agreement capped what they could exercise directly at 24.9%. Two of the principal investors in ASAC were funds affiliated with Davis Selected Advisors, L.P. (" Davis" ), which invested $350 million, and Fidelity Management & Research Co. (" Fidelity" ), which invested $542 million. As of September 30, 2013, funds affiliated with Davis owned over 21 million shares of Activision stock, representing a 3.1% stake, and funds affiliated with Fidelity owned approximately $52 million shares, for a roughly 7.4% stake. Consequently, upon the closing of the Restructuring on October 11, the co-investors in ASAC and their affiliates controlled approximately 35.4% of Activision's voting power.

Kotick and Kelly also enhanced their control at the Board level. Section 3.01(a) of the Stockholders Agreement imposed a series of standstill restrictions on ASAC. In addition to specific limitations in other subsections, subsection 3.01(a)(iv) stated that ASAC shall not, directly or indirectly,

otherwise act, alone or in concert with others, to seek representation on or to control or influence the management, Company Board or policies of the Company or to obtain representation on the Company Board of Directors (other than with respect to the nomination of Mr. Kotick and Mr. Kelly to the Company Board, as determined by the Company Board in the ordinary course).

The Stockholders Agreement only became effective upon the closing of the Restructuring, which was not expected to occur until the end of September.

After the Stockholders Agreement was finalized but before it became effective, Kotick arranged for Nolan and Elaine Wynn to join the Board. As noted, Nolan was the Managing Partner of Leonard Green, whom Kotick and Kelly had approached privately about their bid and who had backed their original offer to Vivendi. Leonard Green invested in ASAC. Nolan's colleagues at Leonard Green objected to him joining the Board, because one of the premises of Leonard Green's involvement in the Restructuring had been that the firm could trade in Activision stock and hedge their investment in ASAC. Having Nolan on the Board limited Leonard Green's ability to trade and hedge, but Leonard Green valued its relationship with Kotick and Kelly. One of Nolan's partners observed that the " [m]ain reason to even consider [joining the Board] is if Bobby/Brian really want it." Nolan agreed to join.

Wynn was a longtime friend of Kotick whose personal relationship with Kotick rose to the level of an immediate family member. Kotick's relationship with Wynn dated back to 1982, when Kotick was a college sophomore trying to launch a computer company. Kotick pitched his business venture to Wynn and her then-husband, casino mogul Steve Wynn, at a social event in Dallas. The Wynns invited him to their home and then flew him back to the east coast on their private plane. Steve Wynn viewed Kotick as a " potential son-in-law" and prot$& x00E9; g$& x00E9; . He financed Kotick's startup without signing a written contract, telling Kotick, " We're family now." Although the startup failed, Kotick's relationship with the Wynns deepened. In a 2008 interview, Kotick stated:

Of all the things that could have happened in my life, meeting the Wynns was probably about the most fortunate. Not just in the way you get a second set of parents--my parents were divorced, so the Wynns came with none of the guilt--but watching what he accomplished.

Kotick refers to Wynn as " Uncle Steve" and has said Wynn is " like my dad." Kotick makes a point of buying a Mother's Day gift for Elaine Wynn, just as he does for his mother and his wife. Wynn agreed to join the Board.

By securing Nolan and Wynn's service on the Board, Kotick and Kelly increased their influence in the boardroom. Without Nolan and Wynn, the post-Restructuring Board would have consisted of Kotick, Kelly, and the three individuals who served on the Committee, resulting in a 3-2 majority of independent directors. Nolan and Wynn added two directors with close ties to Kotick who could be viewed as not independent and who might be expected to favor management, giving Kotick and Kelly a 4-3 majority.

E. Pacchia Obtains Books And Records, Then Files A Derivative Action.

Pacchia learned of the Restructuring through Activision's public filings and was disturbed by Kotick and Kelly's role in the transaction. He contacted Bragar Eagel & Squire, P.C. (" BE& S" ) and used Section 220 of the Delaware General Corporation Law (the " DGCL" ) to obtain books and records relating to the Restructuring.

On September 11, 2013, Pacchia filed a derivative action. Rosenthal, Monhait & Goddess, P.A. served as Delaware counsel. BE& S served as forwarding counsel. Because Pacchia's complaint relied on confidential information obtained using Section 220, it was filed under seal.

Pacchia's complaint alleged that the individual defendants and Vivendi breached their fiduciary duties to Activision, committed acts of waste, and caused Kotick, Kelly, and Vivendi to become unjustly enriched. Based on the Section 220 production, the complaint alleged that Kotick vetoed a transaction structure in which Vivendi would sell any shares that Activision did not buy in a secondary offering, rather than to ASAC. The complaint also alleged that the Board dissolved the Committee on June 8, 2013, clearing the way for Kotick and Kelly to negotiate terms directly with Vivendi. Pacchia did not file an injunction application or seek an expedited schedule.

F. Hayes Files A Class And Derivative Action.

Also on September 11, 2013, Hayes filed a separate action. Prickett, Jones & Elliott LLP served as Delaware counsel. Kessler, Topaz, Meltzer & Check, LLP, served as forwarding counsel. Hayes framed his lawsuit as both a derivative action and a class action. Hayes had not used Section 220 to obtain books and records from Activision, so his complaint relied solely on publicly available information. He included claims similar in form to Pacchia's, including (i) breach of fiduciary duty against Vivendi and the Activision directors, (ii) usurpation of a corporate opportunity by Kotick, Kelly, and ASAC, and (iii) aiding and abetting against various other defendants.

What distinguished Hayes' complaint was a theory that the Restructuring required a stockholder vote. Section 9.1(b) of Activision's certificate of incorporation stated:

Unless Vivendi's Voting Interest (i) equals or exceeds 90% or (ii) is less than 35%, with respect to any merger, business combination or similar transaction involving the Corporation or any of its Subsidiaries, on the one hand, and Vivendi or its Controlled Affiliates, on the other hand, in addition to any approval required pursuant to the DGCL and/or the Corporation's by-laws, the approval of such transaction shall require the affirmative vote of a majority in interest of the stockholders of the Corporation, other than Vivendi and its Controlled Affiliates, that are present and entitled to vote at the meeting called for such purpose.

Hayes alleged that the Restructuring constituted a " merger, business combination or similar transaction involving [Activision] or any of its Subsidiaries, on the one hand, and Vivendi or its Controlled Affiliates, on the other hand," bringing it within the ambit of Section 9.1(b). This decision refers to that theory as the Voting Right Claim.

G. The Injunction Ruling

Simultaneously with the filing of his complaint, Hayes moved for a temporary restraining order that would prevent the defendants from consummating the Restructuring until the court had an opportunity to hear an application for preliminary injunction. Hayes sought injunctive relief solely on the Voting Right Claim. Hayes moved for an expedited hearing in light of Activision's public disclosure that the Restructuring would close by the end of September 2013. After Hayes filed suit, the defendants advised Hayes that they planned to close on September 19.

On September 18, 2013, the court heard the TRO application. At the conclusion of the hearing, the court issued a thirty-six-page bench ruling granting the application. To facilitate prompt appellate review, the court indicated that it would certify the ruling for interlocutory appeal. The defendants' prepared the pertinent papers, and this court certified its order. The Delaware Supreme Court accepted the appeal.

H. The Case Almost Settles.

While the parties were briefing the interlocutory appeal, Hayes pursued settlement discussions with the defendants. On October 7, 2013, Hayes circulated a draft memorandum of understanding for a proposed settlement (the " Draft MOU" ). In return for a global release of all claims relating to the Restructuring, (i) Activision would make a special distribution to its public stockholders of shares of common stock with a market value of $70 million and (ii) Vivendi would pay $15 million to the public stockholders. The Draft MOU also contemplated therapeutic relief in the form of nineteen cosmetic changes to Activision's bylaws. None constituted a meaningful benefit for purposes of the settlement. The Draft MOU likewise included a commitment by Activision to propose charter amendments. The proposals eliminated provisions tailored to Vivendi's majority ownership which no longer made sense after the Restructuring. None of those constituted a meaningful benefit either.

Hayes invited Pacchia to sign onto the Draft MOU. Pacchia elected not to sign. On October 8, 2013, Hayes circulated a draft emergency motion to consolidate the pending actions, appoint Hayes as lead plaintiff, and designate his lawyers as lead counsel. The purported exigency was the need to finalize the Draft MOU.

On October 9, 2013, the day before oral argument before the Delaware Supreme Court, Hayes told Pacchia that the defendants would not sign unless he did. Hayes implored Pacchia to reconsider, reasoning as follows:

If we lose [the appeal], the settlement will be off, our leverage will dissipate, and we will move forward with the litigation. If we win [the appeal], the settlement will be off, the company will hold a shareholder vote, and we believe the shareholders may well approve the transaction. This will give defendants a potential ratification defense in the litigation moving forward, and we believe will make it very hard to extract any consideration through settlement or trial.

Pacchia reluctantly signed on.

Hayes' counsel also tried to convince the law firms of Levi & Korsinksy LLP and Smith Katzenstein & Furlow LLP to sign the Draft MOU. They represented Pfeiffer, who had sent Activision a Section 220 demand in September 2013, after Hayes and Pacchia filed suit. Pfeiffer's demand remained outstanding when Hayes' counsel circulated the Draft MOU. Pfeiffer later would file a Section 220 action, only to dismiss it after Activision disputed whether he actually owned any stock.

On October 10, 2013, the Delaware Supreme Court heard argument in the interlocutory appeal. Later that day, the court entered the following order:

IT IS HEREBY ORDERED that the Court unanimously concludes that the Court of Chancery's judgment must be REVERSED. We hold that there is no possibility of success on the merits. The Stock Purchase Agreement here contested is not a merger, business combination or similar transaction. An Opinion will follow in due course.

Activision-Blizzard, Inc. v. Hayes, No. 497, 2013 (Del. Oct. 10, 2013). The Delaware Supreme Court's ruling established that there was no merit to the Voting Right Claim. As Hayes predicted, the defendants' victory rendered the Draft MOU a dead letter.

I. The Leadership Fight

On remand, both Hayes and Pacchia filed amended complaints. Both pleadings asserted class and derivative claims. Both complaints were considerably more detailed than their original efforts, because during the short time that this court's injunction remained in effect, Activision filed a preliminary proxy statement with the SEC. The proxy statement provided insight into the background of the Restructuring, and both Hayes and Pacchia relied on its contents. Pacchia continued to rely on additional, non-public information that he obtained by using Section 220.

The court consolidated the two actions, and a leadership fight ensued. To bolster his litigation team, Pacchia hired what was then the firm of Bouchard, Margules & Friedlander, P.A., subsequently Friedlander & Gorris, P.A. (" F& G" ). After hearing presentations from both sides, the court found little to distinguish between the named plaintiffs or their legal teams. Neither Hayes nor Pacchia owned a significant equity stake. Pacchia was marginally more qualified by profession and experience to serve as a fiduciary in representative litigation, but not to a dispositive degree. Both sets of law firms were highly competent and capable. Both legal teams had track records demonstrating their ability to obtain excellent results in representative litigation.

As a tiebreaker, the court turned to the Delaware Supreme Court's ruling on appeal. That decision taught that Hayes had pursued the wrong legal theory and acted to the detriment of Activision and its stockholders by pursuing the Voting Right Claim. Because the Delaware Supreme Court had determined that the claim was meritless, Hayes' efforts erroneously placed the closing of the Restructuring at risk. Pacchia, by contrast, had followed what the Delaware Supreme Court had determined was the correct course by not seeking injunctive relief and permitting the Restructuring to close. Given the implications of the Delaware Supreme Court's ruling, the court designated Pacchia as the Lead Plaintiff and his counsel as Lead Counsel.

This ruling did not sit well with Hayes or his counsel--and understandably so. From their perspective, they were on the verge of a settlement worth $85 million that could have supported a fee award of $10-20 million. A month later, they found themselves empty handed and on the sidelines. Revealing how they perceived the events, their brief remonstrates that " Hayes and his counsel were essentially thrown out of the case." Dkt. 352 at 14.

J. Lead Counsel Press Forward.

Immediately after the leadership hearing, Lead Counsel filed a second amended class and derivative complaint. Lead Counsel served document requests and subpoenas and proposed a scheduling order that would allow the case to be tried in 2014. Two disputes immediately arose. The defendants did not want trial to occur until April 2015 at the earliest, and Vivendi argued that its electronic documents were exempt from discovery. Pacchia prevailed on ...

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