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In Re Activision Blizzard, Inc. – A Call to Board
Process

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“Be quick, but don’t be in a hurry.”
– John Wooden

Often in business, as in life, when urgency crosses over into hurry, hurry makes mistakes.

Activision Blizzard and Microsoft’s merger is one such example. They petitioned the court under DGCL 205 to cure and ratify a defective merger at the board level after plaintiff stockholder of Activision Blizzard sued over the process that led to the merger. The board of Activision Blizzard was found to not have ratified an “essentially complete” merger agreement. While the DGCL Amendments attempted to address this issue by allowing for a “substantially complete” merger agreement, this case has several applications for boards moving forward:

Install and monitor a meticulous board process. Ensure that all statutory requirements for board approvals are strictly followed, documenting every step of the process to minimize risk of legal challenge. The board in this case did not have a final board meeting to approve the executed agreement, including all disclosure schedules, while showing changes from previous drafts.

Think through the structure of the deal. Consider the risks inherent in shareholder approval conditions, and structure deals to minimize vulnerabilities to process-based challenges. Here, the board delegated to another board committee the issue of whether Activision could declare and pay dividends, leaving that item open. Activision Blizzard ended up declaring and paying a one- time cash dividend of $0.99 per share. The board in this case should have finalized that item as a best practice, as with all material terms, before approving the merger, rather than delegating to a committee.

Stay informed and retain experts. Engage experienced legal counsel early in the process to help navigate complex board decisions, as well as stay informed on statutory changes and stare decisis.

While there were business reasons for speeding up the transaction, such as a $3B breakup fee owed to Microsoft, and taking advantage of a premium stock price of Activision Blizzard, their hurry in the boardroom created a long-tail of litigation that was avoidable.

Jerome Fogel is co-founder of Fogel & Potamianos LLP, a firm recognized by Chambers & Partners’ California Spotlight Guide for excellence in corporate law. A partner in the Corporate Practice Group and Chair of the Sports & Entertainment Group, he is known as an innovator and dealmaker in the legal community. He serves as an offsite general counsel to privately held companies, including representation in mergers and acquisitions and capital markets transactions.  

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