Case 2:22-cv-01268 Document 1 Filed 02/24/22 Page 1 of 18 Page ID #:1
`Case 2:22-cv-01268 Document1 Filed 02/24/22 Page1of1i8 Page ID #:1
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`BRODSKY & SMITH
`Evan J. Smith, Esquire (SBN 242352)
`esmith@brodskysmith.com
`Ryan P. Cardona, Esquire (SBN 302113)
`rcardona@brodskysmith.com
`9595 Wilshire Boulevard, Suite 900
`Beverly Hills, CA 90212
`Phone: (877) 534-2590
`Facsimile: (310) 247-0160
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`Attorneys for Plaintiff
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`UNITED STATESDISTRICT COURT
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`CENTRAL DISTRICT OF CALIFORNIA
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`KYLE WATSON,
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`Case No.:
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`Plaintiff,
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`Complaint For:
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`VS.
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`ACTIVISION BLIZZARD,INC.,
`REVETA BOWERS, ROBERT CORTI,
`HENDRIK HARTONGIII, BRIAN
`KELLY, BOBBY KOTICK, BARRY
`MEYER, ROBERT MORGADO, PETER
`NOLAN, DAWN OSTROFF, and CASEY
`WASSERMAN.
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`Defendants.
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`(1) Violation of § 14 (a) of the Securities
`Exchange Act of 1934
`(2) Violation of § 20(a) of the Securities
`Exchange Act of 1934
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`JURY TRIAL DEMANDED
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`Plaintiff, Kyle Watson (‘Plaintiff’), by and throughhis attorneys,alleges upon information
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`and belief, except for those allegations that pertain to him, which are alleged upon personal
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`knowledge, as follows:
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`SUMMARYOF THE ACTION
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`1,
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`Plaintiff brings
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`this
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`stockholder action against Activision Blizzard,
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`Inc.
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`(“Activision” or the “Company”) and the Company’s Board of Directors (the “Board” or the
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`“Individual Defendants,” and collectively with the Company, the “Defendants’’), for violations of
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`Sections 14(a) and 20(a) of the Securities and Exchange Act of 1934 (the “Exchange Act”) as a
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`result of Defendants’ efforts to sell the Company to Microsoft Inc. (“Parent,” or “Microsoft”) as a
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`COMPLAINT
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`Case 2:22-cv-01268 Document 1 Filed 02/24/22 Page 2 of 18 Page ID #:2
`Case 2:22-cv-01268 Document1 Filed 02/24/22 Page 2of18 Page ID#:2
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`result of an unfair process, and to enjoin an upcoming stockholder vote on a proposedall cash
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`transaction valued at approximately $68.7 billion (the “Proposed Transaction”).
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`2.
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`The terms of the Proposed Transaction were memorialized in a January 18, 2022,
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`filing with the Securities and Exchange Commission (“SEC”) on Form 8-K attaching the definitive
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`Agreement and Plan of Merger (the “Merger Agreement”). Under the terms of the Merger
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`Agreement, Microsoft will acquireall ofthe remaining outstanding shares ofActivision’s common
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`stock at a price of $95.00 per share in cash. As a result, Activision will becomean indirect wholly-
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`owned subsidiary of Microsoft.
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`3.
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`Thereafter, on February 18, 2022, Activision filed a Preliminary Proxy Statement
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`on Schedule PREM14A (the “Preliminary Proxy Statement”) with the SEC in support of the
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`Proposed Transaction.
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`4.
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`The Proposed Transaction is unfair for a number of reasons. Significantly, the
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`Preliminary Proxy Statement describes an insufficient process in which the Activision Board failed
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`to create an independent committee composedofdisinterested directors to run thesales process.
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`a.
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`Additionally,
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`it appears as though the Board has entered into the Proposed
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`Transaction to procure for themselves and senior management of the Company significant and
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`immediate benefits. For instance, pursuant to the terms of the Merger Agreement, upon the
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`consummation of the Proposed Transaction, Company Board Membersand executiveofficers will
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`be able to exchange all Company equity awards for the merger consideration.
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`6.
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`In violation of the Exchange Act, Defendants caused to be filed the materially
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`deficient Preliminary Proxy Statement with the SEC in an effort to solicit Plaintiff to vote his
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`Activision shares in favor of the Proposed Transaction. The Preliminary Proxy Statementis
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`materially deficient, deprives Plaintiff of the information necessary to make an intelligent,
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`informed andrational decision of whetherto vote in favor ofthe Proposed Transaction,and is thus
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`in violation ofthe Exchange Act. Asdetailed below,the Preliminary Proxy Statement omits and/or
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`misrepresents material information concerning, among other things: (a) the sales process and in
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`particular certain conflicts of interest for management; (b) the financial projections for Activision,
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`COMPLAINT
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`Case 2:22-cv-01268 Document 1 Filed 02/24/22 Page 3 of 18 Page ID #:3
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`provided by the Company to the Company’s financial advisor Allen & Company LLC (“Allen &
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`Company”); and (c) the data and inputs underlying the financial valuation analyses, if any, that
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`purport to support the fairness opinion created by Allen & Company and providedto the Board.
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`ie
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`8.
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`Accordingly, this action seeks to enjoin the Proposed Transaction.
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`Absent judicial
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`intervention,
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`the Proposed Transaction will be consummated,
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`resulting in irreparable injury to Plaintiff. This action seeks to enjoin the Proposed Transaction.
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`9.
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`Plaintiff is a citizen of Tennessee and, at all times relevant hereto, has been an
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`PARTIES
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`Activision stockholder.
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`10.
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`Defendant Activision is one of the nation’s leaders in interactive gaming.
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`Activision is incorporated under the laws of the State of Delaware and hasits principal place of
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`business at 3100 Ocean Park Blvd, Santa Monica, CA 90405. Shares of Activision commonstock
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`are traded on the Nasdaq Exchange underthe symbol “ATVI”.
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`11.
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`Defendant Reveta Bowers (“Bowers”) has been a Director of the Companyatall
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`relevant times.
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`12.
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`Defendant Hendrik HartongIII. (“Hartong’”’) has been a director of the Company
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`at all relevant times.
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`13.
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`Defendant Robert Corti (“Corti”) has been a director of the Companyat all
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`relevant times.
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`14.
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`Defendant Brian Kelly (“Kelly”) has been a director of the Companyatall
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`relevant times. Kelly serves as the chairman of the Board of Directors.
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`15.
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`Defendant Bobby Kotick (“Kotick”) has been a director of the Companyatall
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`relevant times. In addition, Kotick serves as the Company’s Chief Executive Officer (“CEO”).
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`16.
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`Defendant Barry Meyer (“Meyer”) has been a director of the Companyatall
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`relevant times.
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`17. Defendant Robert Morgado (“Morgado”) has beenadirector of the Companyatall
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`relevant times.
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`COMPLAINT
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`Case 2:22-cv-01268 Document 1 Filed 02/24/22 Page 4 of 18 Page ID #:4
`Case 2:22-cv-01268 Document1 Filed 02/24/22 Page 4of18 Page ID #:4
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`18.
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`Defendant Peter Nolan (“Nolan”) has beena director ofthe Companyat all relevant
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`times.
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`19.
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`Defendant Dawn Ostroff (“Ostroff’) has been a director of the Companyatall
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`relevant times.
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`20.
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`Defendant Casey Wasserman (“Wasserman”) has been a director of the Company
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`at all relevant times.
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`21.
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`Defendants identified in f{ 11 - 20 are collectively referred to as the “Individual
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`Defendants.”
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`coCossDN
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`22.|_Non-Party Microsoft is a is a computer software developer with offices throughout
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`the United States and its shares are traded on the Nasdaq Stock Exchange under the symbol
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`“MSFT.”
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`23.|Non-Party Merger Sub is a wholly ownedsubsidiary of Parent created to effectuate
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`the Proposed Transaction.
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`JURISDICTION AND VENUE
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`24.
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`This Court has subject matter jurisdiction pursuant to Section 27 of the Exchange
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`Act (15 U.S.C. § 78aa) and 28 U.S.C. § 1331 (federal question jurisdiction) as Plaintiff alleges
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`violations of Sections 14(a) and 20(a) of the Exchange Act. This action is not a collusive one to
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`confer jurisdiction on a court of the United States, which it would not otherwise have. The Court
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`has supplementaljurisdiction over any claimsarising understate law pursuantto 28 U.S.C.§ 1367.
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`25.
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`Personal jurisdiction exists over each defendant either because the defendant
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`conducts business in or maintains operationsin this District or is an individual whois either present
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`in this District for jurisdictional purposes or has sufficient minimum contacts with this District as
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`to render the exercise of jurisdiction over defendant by this Court permissible undertraditional
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`notions offair play and substantial justice.
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`26.
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`Venueis properin this District pursuant to 28 U.S.C. § 1391, because Activision
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`maintains its principal offices in this district, and each of the Individual Defendants, as Company
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`officers or directors, has extensive contacts within this District.
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`COMPLAINT
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`Case 2:22-cv-01268 Document 1 Filed 02/24/22 Page 5 of 18 Page ID #:5
`Case 2:22-cv-01268 Document1 Filed 02/24/22 Page5of18 Page ID #:5
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`SUBSTANTIVE ALLEGATIONS
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`Company Background
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`27.
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`Activision Blizzard, Inc. is an American video game holding company based in
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`Santa Monica, California. The company was founded in July 2008 through the merger of
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`Activision,Inc. (the publicly traded parent companyofActivision Publishing) and Vivendi Games.
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`The companyis traded on the NASDAQstock exchange underthe ticker symbol ATVI, and since
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`2015 has been one ofthe stocks that make up the S&P 500. Activision Blizzard currently includes
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`five business units: Activision Publishing, Blizzard Entertainment, King, Major League Gaming,
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`and Activision Blizzard Studios.
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`28.
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`|The Company’s most recent
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`financial performance press release,
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`revealing
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`financial results from the quarter preceding the announcement of the Proposed Transaction,
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`indicated sustained andsolid financial performance. For example, in the November 2, 2021 press
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`release announcing its 2021 Q3 financial results, the Company highlighted such milestonesas net
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`revenues presented in accordance with GAAP were $2.07 billion, as compared with $1.95 billion
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`for the third quarter of 2020. GAAPnet revenues from digital channels were $1.85 billion. GAAP
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`operating margin was 40%.
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`29.
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`Speaking on these positive results, CEO Defendant Kotick commented on the
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`Company’s positive financial results as follows, “I’m pleased to report strong third quarter results
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`ahead of our prior outlook,” “We are excited about this week’s Call of Duty launch and expect
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`continued success in the fourth quarter.
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`I want to thank our employees for their continued
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`commitment to each other, the company, and our players. We look forward to sharing progress
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`updates on our workplaceinitiatives, alongside our business performance.”
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`30.
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`These positive results are not an anomaly, but rather, are indicative of a trend of
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`continued financial success and future potential success by Activision. Clearly, based upon these
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`positive financial results and outlook, the Companyislikely to have tremendousfuture success.
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`COMPLAINT
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`Case 2:22-cv-01268 Document 1 Filed 02/24/22 Page 6 of 18 Page ID #:6
`Case 2:22-cv-01268 Document1 Filed 02/24/22 Page 6of18 Page ID #:6
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`31.
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`Despite this upward trajectory and continually increasing financial results, the
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`Individual Defendants have caused Activision to enter into the Proposed Transaction without
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`providing requisite information to Activision stockholders such as Plaintiff.
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`The Flawed Sales Process
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`32.
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`As detailed in the Preliminary Proxy Statement, the process deployed by the
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`Individual Defendants was flawed and inadequate, was conducted out of the self-interest of the
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`Individual Defendants and was designed with only one concern in mind — to effectuate a sale of
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`the Company by any meanspossible.
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`SoFSFITNH
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`33.|Notably, while the Preliminary Proxy Statement makes reference to an “ad hoc
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`committee” it fails to provide adequate information regarding whether this ad hoc committee was
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`a committee composed of independent and disinterested board members and tasked with running
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`the sales process.
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`34.
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`It is not surprising, given this backgroundto the overall sales process, that it was
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`conducted in an inappropriate and misleading manner
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`The Proposed Transaction
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`35.
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`On January 18, 2022, Activision and Microsoft
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`issued a joint press release
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`announcing the Proposed Transaction. Thepressrelease stated, in relevantpart:
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`REDMOND,Wash. and SANTA MONICA,Calif., Jan. 18, 2022 /PRNewswire/
`-- With three billion people actively playing games today, and fueled by a new
`generation steeped in the joys of interactive entertainment, gaming is now the
`largest and fastest-growing form of entertainment. Today, Microsoft Corp.
`(Nasdaq: MSFT) announced plans to acquire Activision Blizzard Inc. (Nasdaq:
`ATVI), a leader in game development and interactive entertainment content
`publisher. This acquisition will accelerate the growth in Microsoft's gaming
`business across mobile, PC, console and cloud and will provide building blocks for
`the metaverse.
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`Microsoft will acquire Activision Blizzard for $95.00 per share, in an all-cash
`transaction valued at $68.7 billion, inclusive of Activision Blizzard's net cash.
`When the transaction closes, Microsoft will become the world's third-largest
`gaming company by revenue, behind Tencent and Sony. The planned acquisition
`includes iconic franchises from the Activision, Blizzard and King studios like
`"Warcraft," "Diablo," "Overwatch," "Call of Duty" and "Candy Crush,"in addition
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`Case 2:22-cv-01268 Document 1 Filed 02/24/22 Page 7 of 18 Page ID #:7
`Case 2:22-cv-01268 Document1 Filed 02/24/22 Page 7of18 PageID#:7
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`to global eSports activities through Major League Gaming. The company has
`studios around the word with nearly 10,000 employees.
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`Bobby Kotick will continue to serve as CEO of Activision Blizzard, and he and his
`team will maintain their focus on driving efforts to further strengthen the company's
`culture and accelerate business growth. Once the deal closes,
`the Activision
`Blizzard business will report to Phil Spencer, CEO, Microsoft Gaming.
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`"Gaming is the most dynamic and exciting category in entertainment acrossall
`platforms today and will play a key role in the development of metaverse
`platforms," said Satya Nadella, chairman and CEO, Microsoft. "We're investing
`deeply in world-class content, community and the cloud to usher in a new era of
`gaming that puts players and creators first and makes gaming safe, inclusive and
`accessibleto all."
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`"Players everywhere love Activision Blizzard games, and webelieve the creative
`teams have their best work in front of them," said Phil Spencer, CEO, Microsoft
`Gaming. "Together we will build a future where people can play the games they
`want, virtually anywhere they want."
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`"For more than 30 years our incredibly talented teams have created some of the
`most successful games," said Bobby Kotick, CEO, Activision Blizzard. "The
`combination of Activision Blizzard's world-class
`talent and extraordinary
`franchises with Microsoft's technology, distribution, access to talent, ambitious
`vision and shared commitment to gaming and inclusion will help ensure our
`continued successin an increasingly competitive industry."
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`Mobile is the largest segment in gaming, with nearly 95% ofall players globally
`enjoying games on mobile. Through great teams and great technology, Microsoft
`and Activision Blizzard will empower players to enjoy the most-immersive
`franchises, like "Halo" and "Warcraft," virtually anywhere they want. And with
`games like "Candy Crush," Activision Blizzard’s mobile business represents a
`significant presence and opportunity for Microsoft in this fast-growing segment.
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`The acquisition also bolsters Microsoft's Game Pass portfolio with plans to launch
`Activision Blizzard games into Game Pass, which has reached a new milestone of
`over 25 million subscribers. With Activision Blizzard's nearly 400 million monthly
`active players in 190 countries and three billion dollar franchises, this acquisition
`will make Game Pass one of the most compelling and diverse lineups of gaming
`content
`in the industry. Upon close, Microsoft will have 30 internal game
`development studios, along with additional publishing and esports production
`capabilities.
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`The transaction is subject to customary closing conditions and completion of
`regulatory review and Activision Blizzard's shareholder approval. The deal is
`expected to close in fiscal year 2023 and will be accretive to non-GAAPearnings
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`COMPLAINT
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`Case 2:22-cv-01268 Document 1 Filed 02/24/22 Page 8 of 18 Page ID #:8
`Case 2:22-cv-01268 Document1 Filed 02/24/22 Page 8of18 Page ID #:8
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`per share uponclose. The transaction has been approvedby the boards of directors
`of both Microsoft and Activision Blizzard
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`Potential Conflicts ofInterest
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`36.
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`The breakdown ofthe benefits of the deal indicate that Activision insiders are the
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`primary beneficiaries of the Proposed Transaction, not the Company’s public stockholders such as
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`Plaintiff. The Board and the Company’s executive officers are conflicted because they will have
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`secured unique benefits for themselves from the Proposed Transaction not available to Plaintiff as
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`a public stockholder of Activision.
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`37.|Notably, Companyinsiders, currently own large, illiquid portions of Company
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`stock, all of which will be exchanged for the merger consideration upon the consummation of the
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`Proposed Transaction. While the Preliminary Proxy Statement provides the following
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`information, it fails to provide an accounting of the consideration that will be paid to Company
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`insiders for these shares upon the consummation of the Proposed Transaction:
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`Name
`Daniel Alegre
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`Reveta Bowers
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`Brian Bulatao
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`Robert Corti
`Grant Dixton
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`Dennis Durkin
`Hendrik HartongIII
`Brian Kelly
`Robert Kotick
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`Barry Meyer
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`Robert Morgado
`Claudine Naughton
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`Peter Nolan
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`Dawn Ostroff
`Chris Walther
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`Casey Wasserman
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`Shares of Activision Blizzard Common Stock Beneficially Owned
`Total
`Shares
`Owned plus
`Right to
`Acquire (#)
`152,442
`
`Shares
`Owned (#)
`14,563
`
`Rightto
`Acquire(#)
`137,879¢)
`
`Percent of
`Outstanding
`Shares(%)
`a
`
`15,284 (4)
`
`—
`
`121,016
`—
`
`157,559
`38,172¢8)
`1,134,685)
`4,317,285
`
`51,052,3)
`
`119,419¢15)
`—
`
`220,778.17)
`
`4,767
`39,684.18)
`
`23,059«19)
`
`6716)
`
`15,7476)
`
`6716)
`—
`
`—
`671(5)
`81,347,10)
`2,201,878c12)
`
`6714)
`
`44,671 (16)
`—
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`6715)
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`67106)
`=
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`6716)
`
`15,955
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`15,747
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`121,687
`_
`
`157,559
`38,843
`1,216,032
`6,519,163
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`$1,723
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`164,090
`—
`
`221,449
`
`5,438
`39,684
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`23,730
`
`7
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`eo
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`e
`ts
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`a
`me
`:
`:
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`7
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`.
`=
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`ce
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`4
`a
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`*
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`cies
`COMPLAINT
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`Case 2:22-cv-01268 Document1 Filed 02/24/22 Page9of18 Page ID #:9
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`Armin Zerza
`1 current directors and executive officers as a
`group
`(14 persons)
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`—
`
`$9,067(20)
`
`59,067
`
`a
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`6,060,080.1)
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`2,545,286(22)
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`8,605,365
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`1.10%
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`38.
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`In addition, Companyinsiders, currently own companyoptions, restricted stock
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`units, and other equity awards, all of which will be exchanged for the merger consideration upon
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`the consummation of the Proposed Transaction. Despite this, the Preliminary Proxy Statement
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`fails to provide an accounting of these equity awards, or the consideration which will be paid out
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`in exchange upon the consummation of the Proposed Transaction.
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`39.|Moreover, certain employment agreements with certain Activision executives,
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`entitle such executives to severance packages should their employmentbe terminated under certain
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`circumstances. These ‘golden parachute’ packages are significant, and will grant each director or
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`officer entitled to them millions of dollars, compensation not shared by Plaintiff and will be paid
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`out as follows:
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`Officera)
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`Robert A. Kotick
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`Armin Zerza
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`Daniel Alegre
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`Brian Bulatao
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`Grant Dixton
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`Cash
`Se
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`Equity
`Se
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`Perquisites/
`Benefits
`Sa
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`Total
`(S)
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`$14,369,130
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`$
`
`0
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`$223,172
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`$14,592,302
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`$ 4,115,068
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`$21,142,348
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`$ 49,832
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`$25,307,249
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`$ 5,529,452
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`$23,497,869
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`$ 49,832
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`$29,077,153
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`$ 4,095,890
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`$ 7,159,120
`
`$ 49,832
`
`$11,304,842
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`$ 2,678,938
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`$12,037,260
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`$ 41,238
`
`$14,757,436
`
`19
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`Claudine Naughtons)
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`$
`
`0
`
`$ 2,080,120
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`$
`
`0
`
`§$ 2,080,120
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`20
`40.|The Preliminary Proxy Statementalso fails to adequately disclose communications
`21
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`regarding post-transaction employmentduring the negotiation of the underlying transaction must
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`be disclosed to stockholders. Communications regarding post-transaction employment during the
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`negotiation of the underlying transaction must be disclosed to stockholders. This information is
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`necessary for Plaintiff to understand potential conflicts of interest of management and the Board,
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`-9-
`COMPLAINT
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`Case 2:22-cv-01268 Document 1 Filed 02/24/22 Page 10 of 18 Page ID #:10
`Case 2:22-cv-01268 Document1 Filed 02/24/22 Page 10o0f18 Page ID #:10
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`as that information provides illumination concerning motivations that would prevent fiduciaries
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`from acting solely in the best interests of the Company’s stockholders.
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`41.
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`Thus, while the Proposed Transaction is not in the best interests of Activision,
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`Plaintiff or Company stockholders, it will produce lucrative benefits for the Company’s officers
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`and directors
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`The Materially Misleading and/or Incomplete Preliminary Proxy Statement
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`42.
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`On February 18, 2022, the Activision Board caused to be filed with the SEC the
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`materially misleading and incomplete Preliminary Proxy Statementthat, in violation the Exchange
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`Act, failed to provide Plaintiff in his capacity as a Company stockholder with material information
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`and/or provides materially misleading informationcritical to the total mix of information available
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`to Plaintiff concerning the financial and procedural fairness of the Proposed Transaction.
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`Omissions and/or Material Misrepresentations Concerning the Sales Process leading up
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`to the Proposed Transaction
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`43.
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`Specifically, the Preliminary Proxy Statementfails to disclose material information
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`conceming the process conducted by the Company and the events leading up to the Proposed
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`Transaction. In particular, the Preliminary Proxy Statement fails to disclose:
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`a. Specific information regarding if the “ad hoc committee” of the Board was a
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`committee composed of independent and disinterested Board members which
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`wastasked to run the sales process; and
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`coCoSDN
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`b. Communications during_theregarding post-transaction employment
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`negotiation of the underlying transaction must be disclosed to stockholders.
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`Communications
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`regarding
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`post-transaction
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`employment
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`during
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`the
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`negotiation of the underlying transaction must be disclosed to stockholders.
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`This information is necessary for stockholders to understand potential conflicts
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`of interest of management and the Board, as that
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`information provides
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`-10-
`COMPLAINT
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`
`
`

`

`Case 2:22-cv-01268 Document 1 Filed 02/24/22 Page 11 of 18 Page ID #:11
`Case 2:22-cv-01268 Document1 Filed 02/24/22 Page 1iof18 Page ID #:11
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`AF&FWONO
`oOCossDN
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`illumination concerning motivations that would prevent fiduciaries from acting
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`solely in the best interests of Plaintiff and Companystockholders.
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`Omissions _and/or_Material_Misrepresentations Concerning Activision’s Financial
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`Projections
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`44,
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`The Preliminary Proxy Statementfails to provide material information concerning
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`financial projections for Activision provided by Activision managementto the Board and Allen &
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`Companyandrelied upon by Allen & Companyin its analyses. The Preliminary Proxy Statement
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`discloses management-prepared financial projections for the Company which are materially
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`misleading.
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`45.
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`Notably the Preliminary Proxy Statement reveals that as part of its analyses, Allen
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`& Company reviewed, “certain internal financial forecasts, estimates and other financial and
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`operating data relating to Activision Blizzard, provided to or discussed with Allen & Company by
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`the management of Activision Blizzard.”
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`46.
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`Therefore, the Preliminary Proxy Statement should have, but fails to provide,
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`certain informationin the projections that Activision managementprovided to the Board and Allen
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`& Company. Courts have uniformly stated that “projections ... are probably among the most
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`highly-prized disclosures by investors. Investors can comeup with their own estimates of discount
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`rates or [] market multiples. What they cannot hopeto dois replicate management’s inside view
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`of the company’s prospects.” In re Netsmart Techs., Inc. S’holders Litig., 924 A.2d 171, 201-203
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`(Del. Ch. 2007)
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`47. With regard to the Long Range Plan projections, the Preliminary Proxy Statement
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`fails to disclose material line items for the following metrics:
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`a. Revenue,
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`including all underlying necessary metrics, adjustments, and
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`assumptions, including specifically: the impact of deferrals from Activision
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`-1l1-
`COMPLAINT
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`

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`9||the Preliminary Proxy Statementfails to disclose material line items for the following metrics:
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`Case 2:22-cv-01268 Document 1 Filed 02/24/22 Page 12 of 18 Page ID #:12
`Case 2:22-cv-01268 Document1 Filed 02/24/22 Page 12o0f18 Page ID #:12
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`Blizzard’s accounting treatment under GAAP on certain of Activision
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`Blizzard’s online-enabled products; and
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`b. Operating Income,includingall underlying necessary metrics, adjustments, and
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`assumptions, including specifically: earnings before interest and taxes, and,
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`other costs, net, acquisition-related costs, net and certain other expensesthat
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`result from unplanned events outside the ordinary course of continuing
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`operations.
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`48.
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`With regard to the Management Forecasts prepared by Activision Management,
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`a. Revenue,
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`including all underlying necessary metrics, adjustments, and
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`assumptions, including specifically: the impact of deferrals from Activision
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`Blizzard’s accounting treatment under GAAP on certain of Activision
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`Blizzard’s online-enabled products;
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`b. EBIT (Pre-SBC),including all underlying necessary metrics, adjustments, and
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`assumptions, including specifically: earnings before interest and taxes, and,
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`other costs, net, acquisition-related costs, net and certain other expensesthat
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`result from unplanned events outside the ordinary course of continuing
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`operations; and
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`c. Adjusted EBITDA, including all underlying necessary metrics, adjustments,
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`and assumptions,
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`including specifically: earnings before interest,
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`taxes,
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`acquisition-related costs, net and certain other expenses that result from
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`unplanned events outside the ordinary course of continuing operations.
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`49.
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`The Preliminary Proxy Statementalso fails to disclose a reconciliation of all non-
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`24||GAAP to GAAPmetrics utilized in the projections.
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`25
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`50.
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`This information is necessary to provide Plaintiff in his capacity as a Company
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`26||stockholder a complete and accurate picture of the sales process and its fairness. Without this
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`-12-
`COMPLAINT
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`Case 2:22-cv-01268 Document 1 Filed 02/24/22 Page 13 of 18 Page ID #:13
`Case 2:22-cv-01268 Document1 Filed 02/24/22 Page 130f18 Page ID #:13
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`information, Plaintiff is not fully informed as to Defendants’ actions, including those that may
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`2
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`have been taken in bad faith, and cannotfairly assess the process.
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`51. Without accurate projection data presented in the Preliminary Proxy Statement,
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`4
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`Plaintiff is unable to properly evaluate the Company’s true worth, the accuracy of Allen &
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`Company’s financial analyses, or make an informed decision whether to vote in favor of the
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`Proposed Transaction. As such, the Board has violated the Exchange Act by failing to include
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`such information in the Preliminary Proxy Statement.
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`6 7
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`Omissions_and/or_Material Misrepresentations Concerning the Financial Analyses by
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`Allen & Company
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`52.
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`In the Preliminary Proxy Statement, Allen & Company describes its fairness
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`opinion and the various valuation analyses performed to render such opinion. However, the
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`descriptions fail to include necessary underlying data, support for conclusions,or the existence of,
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`or basis for, underlying assumptions. Without this information, one cannotreplicate the analyses,
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`confirm the valuations or evaluate the fairness opinions.
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`53.
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`With respect to the Selected Public Companies Analysis, the Preliminary Proxy
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`Statement fails to disclose the following:
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`a. The specific metrics for each comparable company;
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`b. The specific inputs and assumptions used to determine the utilized ranges of
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`calendar year 2022 estimated EBITDA multiples of 13.5x to 18.0x;
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`c. The specific inputs and assumptions used to determine the utilized ranges of
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`calendar year 2023 estimated EBITDA multiples of 12.5x to 15.0x; and
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`d. The specific reasoning as to why only three companies where chosen for
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`comparison.
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`54.
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`With respect to the Selected Precedent Transactions Analysis, the Preliminary
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`Proxy Statementfails to disclose the following:
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`a. The specific metrics for each precedent transaction;
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`b. The specific date on which each precedenttransaction closed;
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`
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`-13-
`COMPLAINT
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`

`

`Case 2:22-cv-01268 Document 1 Filed 02/24/22 Page 14 of 18 Page ID #:14
`Case 2:22-cv-01268 Document1 Filed 02/24/22 Page 14o0f18 Page ID #:14
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`c. The aggregate value of each precedenttransaction; and
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`d. The specific inputs and assumptions used to determine the utilized range of
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`latest 12 months EBITDA multiples of 14.0x to 20.0x.
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`55. With respect to the Discounted Cash Flow Analysis,
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`the Preliminary Proxy
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`5||Statementfails to disclose the following:
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`10
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`a. The implied terminal values for Activision calculated;
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`b. The specific inputs and assumptions used to determine the utilized perpetuity
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`growthrate range of 2.25% to 2.75%; and
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`c. The specific inputs and assumptionsused to determinethe utilized discountrate
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`range of 6.50% to 8.00%.
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`56. With respect to the Wall Street Research Analysts analysis, the Preliminary Proxy
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`12||Statementfails to disclose the following:
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`a. The specific price targets utilized; and
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`b. The specific identity of the Wall Street firms that created the utilized price
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`targets.
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`57.
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`These disclosuresare critical for Plaintiff to be able to make an informed decision
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`17||on whetherto vote in favor of the Proposed Transaction.
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`18
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`58. Without the omitted information identified above, Plaintiff is missing critical
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`19||information necessary to evaluate whether the proposed consideration truly maximizes his value
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`20||and serves his interest as a stockholder. Moreover, without the key financial information and
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`21||related disclosures, Plaintiff cannot gaugethereliability of the fairness opinion and the Board’s
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`22||determination that the Proposed Transaction is in his best interests as a public Activision
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`23||stockholder. As such, the Board has violated the Exchange Act by failing to include such
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`24||information in the Preliminary Proxy Statement.
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`-14-
`COMPLAINT
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`

`

`Case 2:22-cv-01268 Document 1 Filed 02/24/22 Page 15 of 18 Page ID #:15
`Case 2:22-cv-01268 Document1 Filed 02/24/22 Page 15o0f18 Page ID #:15
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`FIRST COUNT
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`Violations of Section 14(a) of the Exchange Act
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`(Against All Defendants)
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`59.
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`60.
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`Plaintiff repeats all previous allegationsas if set forth in full herein.
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`Defendants have disseminated the Preliminary Proxy Statement with the intention
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`6||of soliciting stockholders, including Plaintiff, to vote in favor of the Proposed Transaction.
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`7
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`61.
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`Section 14(a) of the Exchange Act requires full and fair disclosure in connection
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`8||with the Proposed Transaction. Specifically, Section 14(a) providesthat:
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`It shall be unlawful for any person, by the use of the mails or by any means or
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`instrumentality of interstate commerce or of any facility of a national securities
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`exchangeor otherwise, in contravention of such rules and regulations as the [SEC]
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`may prescribe as necessary or appropriate in the public interest or for the protection
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`of investors, to solicit or to permit the use ofhis nameto solicit any proxy or consent
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`or authorization in respect of any security (other than an exempted security)
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`registered pursuant to section 78/ ofthistitle.
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`62.
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`Assuch, SEC Rule 14a-9, 17 C.F.R. 240.14a-9, states the following:
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`Nosolicitation subject to this regulation shall be made by means of any proxy
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`statement, form of proxy, notice of meeting or other communication, written or
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`oral, containing any statement which, at
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`the time and in the light of the
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`circumstances under whichit is made