Tag: Video Games

Delaware Supreme Court Discusses Meaning of “Business Combination” In Activision Vivendi Case

As it turns out, it isn’t ambiguous.

Link: Activision Blizzard Inc. v Hayes

In an appeal of an injunction, the Delaware Supreme Court took a look at whether a stock buyback would be a “business combination” requiring stockholder approval under Activision’s bylaws.

Background

Activision Blizzard Logo
Activision Blizzard fights for its rights to buyback its shares.

In 2008 Activision bought Vivendi’s video game subsidiary for Activision shares.  Vivendi also made a separate cash investment in Activision.  Activision’s bylaws were amended to require approval of unaffiliated stockholders with respect to any merger, business combination or similar transaction between Activision and Vivendi. In 2012, Vivendi wanted to sell its Activision stake but found no takers.  Activision agreed to a buyback, under which Vivendi would create a non-operating sub, “Amber,” to hold the assets for sale and Activision would purchase Amber. Activision did not seek stockholder approval, which was the part of the reason for the litigation, which resulted in a preliminary injunction.

Court’s Analysis

The court first looked to see if “business combination” was ambiguous.  Nope.

“A provision is ambiguous only if it is “reasonably susceptible to more than one meaning,” and the fact that the parties offer two different interpretations does not create an ambiguity. Moreover, a provision “may be ambiguous when applied to one set of facts but not another. Finally, the provision must be read in context.”

The court decided that while the meaning could be ambiguous in some contexts, it was not ambiguous here because under their agreement, Vivendi will sell 429 million shares of Activision stock back to Activision. Because those shares will become treasury stock, control of Activision will shift from Vivendi to Activision’s public stockholders. Vivendi’s holdings will decrease from 61% to 12%, and Vivendi’s representation on Activision’s board will decrease from six appointees to none.

Since there was no “combination or intermingling of Vivendi’s and Activision’s businesses,” it is not a business combination.  In fact it is the opposite of a business combination.  These companies will be separating themselves.  As a result, the stockholder approval requirement does not apply.

In addition, structuring the sale through Amber does not change the analysis.  Neither the form of the transaction nor its size changes its fundamental nature. Amber is a shell created to serve as the transaction vehicle.  The court stated that calling Amber a business “disregards its inert status” and “glorifies form over substance.”

The size of the deal does not change the analysis.  The plaintiffs argued that it was a “value-moving” transaction.  However, the bylaws do not require stockholder approval based on size of the deal.

In addition, the bylaws do not require stockholder approval for any deal between Activision and Vivendi, only specified transactions.  While the Chancery Court may have been looking out for the non-interested shareholders’ interests, other provisions of the bylaws already provided for independent director approval for related party transactions.

Startup Tips and Lessons from Zynga: Knowing When To Step Aside

Sometimes the skills needed to start a company are different from the skills needed to run a company.

Cross-posted at My Gamasutra Blog.

Earlier this week, Zynga made an announcement that was not too surprising to folks following the company.  Mark Pincus was out as CEO.

Zynga was a high-flying casual game developer sailing on the winds of its relationship with Facebook.  Zynga described itself as “the world’s leading social game developer.”  It went public in December 2011 at $10.00/share, and its stock price had traded as high as $14.69/share in early 2012.

Since that time, Zynga’s fortunes have fallen.  Its stock has traded below $4.00/share since Summer 2012 as its daily and monthly active users declined and it continued to lose a lot of money.

What was surprising was the Pincus was staying on as Chief Product Officer and Chairman of the Board.

In addition, reports state that Don Mattrick, the new CEO, was chosen by Pincus as his successor.  Pincus was quoted as saying:

“that if I could find someone who could do a better job as our CEO I’d do all I could to recruit and bring that person in. I’m confident that Don is that leader.”

So, what are the lessons here for startups, particularly tech startups?

I’ve previously written about how startups need people different skillsets at different points in their maturity.*  What is remarkable in the Zynga story is that Pincus seemed to understand that Zynga had grown past his skillset as a CEO, and a different kind of leader at this point in its development.

Most founders, even those that do not name the company after a beloved pet, consider that company to be “their baby,” even after taking VC money and public investor money.  They have nurtured the company from idea-to-business, and they believe that they should maintain control of it, even in the face of mounting evidence to the contrary, like, say, gigantic losses of money and declining user numbers, prying a founder out of a controlling role can be difficult and painful.  This can be particularly painful for the founder, who may be faced with a loss of confidence and sense of shame despite the company he or she may have built.

Pincus will continue to have a powerful role at Zynga, particularly as one of the two members of the Executive Committee of the Board of Directors.  However, if the reports of how this transfer of power took place are accurate, Pincus should be commended for his maturity and foresight in recognizing the changing needs of Zynga.

Or maybe he should be admired for his strategic foresight in maintaining a powerful role before being dispatched entirely by the Board of Directors and angry shareholders.  Maybe Mafia Wars does prepare you for real life after all.

*For Gamasutra readers, see here for a discussion of how companies begin to need salespeople as they mature, a position that founders may not be suitable.