LOS ANGELES (CN) - The CEO of Activision Blizzard is buying back billions of dollars of discounted stock from Vivendi, giving insiders - but not Activision - a "staggering windfall" of more than $600 million, a shareholder claims in a derivative lawsuit.
Todd Miller filed a shareholder derivative complaint in Superior Court against Activision, its 11-man board of directors, and Vivendi, the entertainment and publishing conglomerate, alleging breach of fiduciary duties, waste of corporate assets and unjust enrichment.
On July 26, Activision, known for blockbuster franchises such as "Call of Duty," announced that French multinational Vivendi had agreed to sell back 85 percent of its majority stake for $8.17 billion to Activision and an investment group headed by defendants CEO Bobby Kotick and co-chairman Brian Kelly.
Vivendi owns 61 percent of Activision stock but is "riddled with over $17 billion in debt," and is desperate to sell, according to the complaint.
Activision will buy back buy 439 million of Vivendi's shares for $5.83 billion, Miller says, and Kotick's investor group will pick up 172 million shares in a private sale for $2.34 billion. That is a 10 percent discount on Activision's closing price the day before the deal was announced.
"Upon closing of the deal, the insider investor group will become the company's largest shareholder, holding approximately 172 million shares, or approximately 24.9 percent of the outstanding common stock," the complaint states.
Miller claims that while the investor group stands to "score an immediate paper windfall of $664 million" the private sale does not benefit Activision in any way.
"(T)here was no apparent business purpose in allowing the insider investor group to participate in the discounted stock offering, other than to aggrandize defendants Kotick and Kelly and provide billions of dollars' worth of Activision stock to the insider investor group at a discounted price," the lawsuit states.
Miller claims the deal allows Kotick and Kelly to "usurp" the company, and "entrench" themselves into "positions of power atop Activision."
At least six of the eleven Activision board members are conflicted due to close ties with Vivendi, where many of them were once executives, Miller claims.
"Further, in addition to being beholden to Vivendi, the Vivendi-controlled directors have no incentive to resist Vivendi's push, as they are all retiring from their roles as Activision directors upon consummation of the transaction," the complaint states.
Miller asks the court to rescind the purchase agreement and order Activision to institute controls to "prevent future one-sided self-dealing."
Activision, the largest video games publisher in the United States, has published several popular video game franchises, including "Call of Duty," "Skylanders," and role-the playing game "World of Warcraft." The success of those titles helped generate revenue of $1 billion in four of the past five financial quarters.
Named as defendants with Kotick and Kelly are Activision directors Philippe Capron, Robert Morgado, Robert Corti, Richard Sarnoff, Frederic Crepin, Regis Turrini, Lucian Grainge, Jean-Yves Charlier, and Jean-Francois Dubos.
Vivendi S.A. and nominal defendant Activision are also parties.
Miller is represented by Stephen Oddo with Robbins Arroyo of San Diego.
Activision could not immediately be reached for comment after business hours Thursday.