In In re Activision Blizzard, Inc Stockholder Litigation, Consol. C.A. No. 8885-VCL (Del. Ch. May 21, 2015), the Delaware Court of Chancery approved a $275 million settlement agreement in derivative shareholder litigation and awarded $72.5 million in fees and expenses to the plaintiff’s lead counsel. The Court’s opinion articulates key principles of Delaware corporate law in connection with the settlement of derivative lawsuits and class actions.
This case arises from a 2013 restructuring in which Activision Blizzard, Inc. (“Activision”), a Delaware corporation, and ASAC II LP (“ASAC”), an entity controlled by Activision’s two most senior executives, agreed to buy back shares of Activision from Vivendi S.A. (“Vivendi”). Before the restructuring, Vivendi owned approximately 61% of the outstanding shares of Activision. After the $8.2 billion deal, Vivendi held approximately 12% and ASAC possesssed a controlling interest in Activision.
In 2014, several Activision shareholders brought a lawsuit on behalf of Activision alleging breach of fiduciary duty by the Activision directors who had approved the deal, the senior executives in control of ASAC, and Vivendi. The shareholders believed that the 2013 restructuring should have been put to a shareholder vote, and that the senior executives in control of ASAC improperly put their own interests above those of other shareholders.
The Court approved a $275 million settlement, reported to be the largest settlement in a derivative matter, to be returned to Activision, reasoning that the dollar amount fell within a range of results that reasonable parties on the plaintiffs’ side could accept given the size of the underlying transaction and the prospect of a damages award being granted to the plaintiffs. The Court also held that it was acceptable to allocate the monetary award entirely to Activision, rather than awarding some of it to stockholders directly, since the group that was injured in the restructuring and the group benefitting from the $275 million award to Activision were the same – Activision’s current stockholders.
The Court also considered the attorneys’ fees and expenses and held them to be reasonable. The $72.5 million award was between 23 and 26 percent of the value of the settlement. The Court noted that this litigation was more complex than typical cases and the award was within the range of reasonableness for the stage at which the matter settled.
In re Activision Blizzard, Inc Stockholder Litigation is a helpful reminder of the factors that the Court considers when evaluating the adequacy of settlement consideration, including “(1) the probable validity of the claims, (2) the apparent difficulties in enforcing the claims through the courts, (3) the collectability of any judgment recovered, (4) the delay, expense and trouble of litigation, (5) the amount of the compromise as compared with the amount and collectability of a judgment, and (6) the views of the parties involved, pro and con.”