Stein v. Activision Blizzard: One Complaint in a Storm of Shareholder Lawsuits

Jul 29, 2022

By Courtney Seams, GW Law 2022 Graduate

(Editor’s Note: The following appears in Esports and the Law, a periodical produced by Hackney Publications.)

Recently, Microsoft announced plans to acquire Activision Blizzard (AB) in a merger. Microsoft will acquire AB for $95 per share in an all-cash transaction for a total of $68.7 billion in a deal that was unanimously approved by AB’s board of directors. AB owns games such as Call of Duty, Overwatch, Warcraft, and Candy Crush and has a total of 400 million monthly active players. The merger will not be complete until 2023 and will make Microsoft the third largest gaming company.

Since the merger was announced, multiple shareholders have filed lawsuits against AB seeking injunctive relief to stop the merger unless more information regarding the merger is provided to the shareholders. One of these lawsuits was brought by Shiva Stein, an AB shareholder, who alleged that AB and its board members violated Sections 14(a) and 20(a) of the Securities Exchange Act (SEA). Stein is a unique plaintiff in that she has previously filed 124 securities lawsuits over the course of two years, half of which were dismissed voluntarily.

In this lawsuit, Stein alleged that the company failed to release material information that was relied upon to create the misleading proxy statement given to shareholders, which encouraged them to vote in favor of the merger. Stein alleged that the company failed to release internal financial records that were relied upon by the Board and the financial advisors involved in approving the deal.  Stein alleges that the failure to release this financial information to shareholders is in violation of the SEA Section 14(a) and makes the proxy statement misleading to shareholders who had yet to vote on the merger at the time. The proxy statement was misleading, according to Stein, because shareholders did not have all of the information necessary to make a fully-informed decision regarding the merger. Further, Stein alleged that the board was in violation of Section 20(a) of the SEA because they had the power to control and were directly involved in the making of the misleading proxy statement.

This past April, 98 percent of AB shareholders voted in favor of the merger. In May, following this shareholder approval, Stein voluntarily dismissed the case, however other shareholder suits regarding the merger and its lack of financial transparency are ongoing. Other plaintiffs are concerned that there is a conflict of interest for the board who may be receiving financial benefits from the transaction – specifically financial gains from the board members’ option to exchange all company equity awards for merger consideration.

Microsoft and Activision Blizzard are still moving forward with the merger and have stated that they disagree with the claims in the shareholder lawsuits that have been brought so far. It will be interesting to see how these suits play out over the next year as the merger comes to a close.