Harini Kidambi

In the fast-tracked case Hayes v. Activision Blizzard Inc.[1], the Delaware Supreme Court unanimously reversed the lower court’s injunction and allowed Activision Blizzard, Inc., a leader in interactive entertainment, to move forward with the completion of a transaction that would result in the Company acquiring 429 million shares.

An Activision shareholder sued in the Chancery Court, arguing that the transaction would allow for the decisions makers of the deal to exercise control of the company.  The plaintiff successfully argued that the Activision Directors had breached their fiduciary duties by failing to get a vote of confidence from a majority of the minority public shareholders.[2]  However, Activision countered that the plaintiff had known about the buyback for months, but spoke up at the last moment, such that Activision would not have the time to organize a vote.  The Chancery court, in a rare move for Delaware courts, ruled for an injunction despite a lack of evidence that there was gross misconduct or self-dealing.[3]

This case addresses the issue of whether the structure of the qualified transaction is the type of business combination that requires a vote by public shareholders.  Interestingly, in a same-day ruling from the bench that came mere weeks after the lower court’s decision and subsequent appeal, the Supreme Court ruled that no vote was required.

It is important to note that the Supreme Court Justices asked questions about the structure of the deal and seemed to care about how it would impact shareholders.  In a court filing, Activision’s attorneys stated that minority shareholders stood to lose a total of $1 billion if the deal remained blocked, which might have had a significant impact on the Supreme Court’s quick decision to lift the injunction on Activision.[4]

Though the full written opinion has not yet been released, the immediate impact of the oral ruling has been clear — an upsurge of 4.7% in Activision shares.[5]  Furthermore, the decision assures independence for Activision throughout its transaction, as the ruling removes the last obstacle for its buyback, which will allow for its board of directors to become more financially flexible.[6]  This flexibility is typical of Delaware courts, and will likely be explained in the Court’s full opinion.[7]

Delaware Courts have often been seen as a paragon of corporation law and a model for other state courts to follow.  This decision speaks to the Delaware Supreme Court’s ability to recognize, quite quickly in this case, the limited extent of a shareholder’s right in the event that a board of directors has not breached its fiduciary duties.[8]  Furthermore, the full opinion will likely reference the business judgment rule,[9] which has been codified in Delaware law to give directors leeway in conducting the operations of the corporation, and has set a difficult threshold for a plaintiff to demonstrate injury in order to prevail in court.[10]  The Court has constantly dealt with the challenge of having to balance the powers of boards of directors and corporation against those of the shareholders, and has constantly ruled that where a board does not breach its fiduciary duties or act in its own self-interest or fraudulently, that shareholders cannot triumph in court.[11]  This case further cements the reasons that corporations flock to Delaware, and the Court’s ability to quickly parse through a case and deliver a ruling based on its interpretation of corporate law.


[1] No. 497-2013, 2013 WL 5612558, at *1 (Del. Oct. 10, 2013).

[2] Appeal of Activision-Vivendi ruling to be heard Oct. 10, REUTERS (Sept. 23, 2013, 4:42 PM), https://www.reuters.com/article/2013/09/23/activision-vivendi-appeal-idUSL2N0HJ1UM20130923.

[3] Hayes v. Activision Blizzard, Inc., No. 8885-VCL, 2013 WL 5293536, at *1 (Del. Ch. Sept. 19, 2013).

[4] Id.

[5] Activision Blizzard and Investor Group Expect to Complete Purchase of Company Stock from Vivendi by October 15, 2013, WALL ST. J. (Oct. 10, 2013, 2:41 PM), https://www.marketwatch.com/story/activision-blizzard-and-investor-group-expect-to-complete-purchase-of-company-stock-from-vivendi-by-october-15-2013-2013-10-10.

[6] Activision Blizzard and Investor Group Expect to Complete Purchase of Company Stock from Vivendi by October 15, 2013, ACTIVISION BLIZZARD, https://investor.activision.com/releasedetail.cfm?ReleaseID=796295.

[7] Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984).

[8] Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, 185 (Del. 1986).

[9] DEL. CODE ANN. tit. 8, § 141(a) (2010).

[10] Sinclair Oil Corp. v. Levien, 280 A.2d 717, 720 (Del. 1971).

[11] Unitrin, Inc. v. American General Corp., 651 A.2d 1361, 1391 (Del. 1995).

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