In this en banc decision, the Supreme Court set forth the basis for its order reversing the Court of Chancery’s preliminary injunction of a stock purchase agreement under which Vivendi, S.A. agreed to sell its controlling interest in Activision Blizzard, Inc. The Supreme Court held that Activision’s purchase of stock from Vivendi was not a “merger, business combination or similar transaction” that would have triggered a stockholder vote under Activision’s charter.
Activision is a Delaware corporation that develops, publishes, and distributes video games. Vivendi is a French digital entertainment company that, following the 2007 sale of its video game subsidiary to Activision, owned approximately 61% of Activision’s stock. As a condition to the 2007 sale, Activision adopted a new charter provision, Section 9.1(b), which requires approval of a majority of the stockholders unaffiliated with Vivendi “with respect to any merger, business combination or similar transaction involving [Activision] . . . and Vivendi.”
On July 25, 2013, Activision announced that it had agreed to pay Vivendi $5.83 billion for 429 million shares of Activision stock and $675 million in net operating loss carryforwards (NOLs). The sale was to be accomplished by Activision’s acquisition of a new “non-operating subsidiary” from Vivendi. Vivendi also agreed to sell an additional 172 million Activision shares to a limited partnership owned by Robert Kotick, Activision’s president and CEO, and Brian Kelly, Co-Chairman of Activision’s board.
On September 11, 2013, Douglas Hayes, an Activision stockholder, filed suit in the Court of Chancery challenging the sale. On September 18, 2013, the Court of Chancery held that the stock purchase was a “merger, business combination or similar transaction” under Section 9.1(b) and enjoined the stock purchase pending approval of Activision’s public stockholders.
On October 10, 2013, following expedited briefing and argument of an interlocutory appeal, the Supreme Court reversed. In a written opinion setting forth the basis for that decision, the Court held that the unambiguous meaning of the term “business combination” did not encompass Vivendi’s stock sale because the sale “does not involve any combination or intermingling of Vivendi’s and Activision’s businesses.” Rather, the two companies would be separating their business connection, control of Activision would return from Vivendi to Activision’s public stockholders, and Vivendi would have no voting or board control of Activision. The Supreme Court held that the phrase “similar transaction” in Section 9.1(b) includes only transactions that, like a merger or business combination, result in Vivendi having a greater connection with or control over Activision’s business. The Supreme Court found nothing in the plain language of Section 9.1(b) to support the interpretation that it was intended to provide a broader protection for stockholders in the event of a large, value moving transaction between Activision and Vivendi. The Court noted that transactions of that type are addressed by a provision in Activision’s bylaws that requires majority independent director approval of any related-party transaction.
Finally, the Supreme Court rejected the plaintiff’s argument that the stock purchase was a business combination because Activision would be acquiring a wholly owned Vivendi subsidiary. Because the subsidiary was only a shell company created by Vivendi to facilitate the sale, the Supreme Court concluded that calling it a “business” for purposes of Section 9.1(b) “disregards its inert status and glorifies form over substance.”
The full opinion is available here.