Delaware Supreme Court Lifts Injunction; Allows Vivendi/Activision Deal to Proceed
Activision Blizzard Inc. v. Hayes et al., No. 497-2013, order issued (Del. Oct. 10, 2013). In a rare ruling from the bench, after oral argument, the Delaware Supreme Court reversed an injunction granted by the Court of Chancery in Hayes v. Activision Blizzard Inc., No. 8885, 2013 WL 5293536 (Del. Ch. Sept. 18, 2013). The formal written Supreme Court opinion was issued on Nov. 15, 2013.
The issue addressed was whether the structure of the deal qualified as the type of business combination that required a vote by public shareholders. In a unanimous ruling, Delaware’s high court ruled that no vote was required. A formal opinion followed.
In 2007, Vivendi had purchased a majority interest in Activision and the right to designate approximately half of Activision’s board in connection with a stock purchase agreement. Fast forward to 2013. Both Vivendi and Activision want to unwind their business combination and go their separate ways.
Activision offered to pay $5.8 billion for the majority of Vivendi’s ownership in Activision, which Vivendi would place in a non-operating shell company for Activision to acquire. Those shares re-acquired by Activision would be treasury shares, and would thereby reduce the number of Activision’s outstanding shares. Additionally, Vivendi would sell a portion of its Activision interest to a limited partnership owned by the two Activision-designated board members (who also served as Activision’s President/CEO and Chairman of the Board).
These proposed transactions would leave Vivendi with 11.9% of Activision, the limited partnership with 24.7%, and the public stockholders with 63.4%.
Despite the outcome, which would ultimately benefit the public stockholders, the public stockholders sought to temporarily restrain the transaction and put the transaction to a stockholder vote. According to the stockholders, Section 9.1(b) of Activision’s charter, which provides for a shareholder vote on a “merger, business combination or similar transaction,” mandated that Activision put the transaction to a vote. The Court of Chancery converted the motion for TRO into a motion for preliminary injunction, and enjoined the proposed transaction between Activision and Vivendi, because generally, the transaction looked like a business combination and smelled like a business combination. Therefore, the Court of Chancery ruled, the transaction is subject to a stockholder vote under the charter.
Activision appealed the injunctive order, arguing that (i) the Court of Chancery improperly converted the motion for TRO into a motion for a preliminary injunction; (ii) laches should bar the stockholders from trying to enjoin a transaction at the last minute given their prior knowledge of the deal; and (iii) no stockholder vote is required pursuant to Section 9.1(b) because the transaction is not a merger, business combination, or similar transaction.
The Delaware Supreme Court tackled the merits argument and agreed with Activision that “[t]his transaction does not involve any combination or intermingling of Vivendi’s and Activision’s businesses. Indeed, it is the opposite of a business combination. Two companies will be separating their business connection….” Further, the Court noted that calling Activision’s acquisition of a holding company formed exclusively for the purpose of consummating this transaction a “merger or business combination” would be an inappropriate glorification of form over substance. Importantly, the Court acknowledged that Activision’s charter would have provided for additional protection at the stockholder level if the transaction increased (as opposed to decreased) Vivendi’s interest in Activision.
In a unanimous ruling issued just hours after oral argument on October 10, 2013, Delaware’s high court ruled that no vote was required for the transaction to disentwine the businesses of Activision and Vivendi. A formal opinion followed on November 15, 2013. This is an example of how quickly the Delaware courts can decide cases. This final appellate ruling came about a mere month after the complaint was filed in the trial court.