New York City sues Activision Blizzard, says Bobby Kotick is 'unfit' to negotiate the Microsoft buyout

Bobby Kotick
(Image credit: Drew Angerer (Getty))

Activision Blizzard is facing yet another lawsuit, this one filed by the New York City Employees' Retirement System and pension funds representing the city's fire department, police, and teachers. The suit, available via Axios, claims that CEO Bobby Kotick was "unfit to negotiate a sale of the company" to Microsoft, and made the deal in part to "escape liability" for his role in enabling workplace misconduct and abuse.

The plaintiffs say the lawsuit arises from an October 2021 demand to inspect Activision Blizzard's books and records as part of an investigation into its board of directors, specifically its "failure to maintain a safe and non-discriminatory working environment for its (specifically minority and female) employees, and failure to take action in response to repeated, grave allegations of misconduct, discrimination, and harassment by Activision’s senior executives."

Activision partially complied, according to the complaint, but then on January 18—while the inspection was ongoing—the company announced the acquisition deal with Microsoft. The plaintiffs say that agreement undervalues Activision Blizzard—not only on the basis of the share price premium, which the suit describes as "a paltry 1.16%,"  but also because it also does not account for the value of "derivative claims" the plaintiffs were developing separately against Activision Blizzard. Those claims will go away if and when Activision Blizzard becomes a Microsoft subsidiary.

The deal happened so quickly and at such a discount, the plaintiffs allege, because members of Activision Blizzard's board of directors, and Kotick in particular, "faced a strong likelihood of liability for breaches of fiduciary duty" for failing to address the allegations of widespread misconduct at the company.

"No longer," the lawsuit states. "With the announced merger, Kotick will be able to escape liability and accountability entirely, and will instead continue to serve as an executive after the merger closes. Worse, despite his potential liability for breaches of fiduciary duty, the Board allowed Kotick himself to negotiate the transaction with Microsoft. The Board’s decision to entrust Kotick with the negotiation process is inexcusable for the additional reason that Kotick stands to personally receive substantial material benefits whose value is not directly aligned with the merger price."

The suit also references the March 2022 purchase of roughly $108 million of Activision shares by Alexander von Furstenburg, Barry Diller, and David Geffen—all friends or associates of Kotick. That deal sparked investigations into possible insider trading by both the US Justice Department and the Securities and Exchange Commission.

"These highly suspicious trades stand to deliver the three Kotick affiliates a windfall of more than $100 million," the lawsuit states. "Kotick’s continued suspected misconduct even after the merger was agreed to further underscores the fact that Kotick was unfit to negotiate the merger on behalf of the company."

Attorney Richard Hoeg of Hoeg Law noted that the lawsuit is a "books and records request" relating to the initial demand for records—its demands include access to the information requested in its original 2021 filing, as well as expenses and legal fees incurred by the lawsuit and "further relief as the court deems just and proper"—and while the language is pointed Hoeg said it's unlikely to have a bearing on the acquisition, which was overwhelmingly approved by shareholders last week.

"Ok, so this is a books and records request (not a more substantive lawsuit), it's not filed by the city but by funds that have an investment interest in Activision, and, to be frank, the 98% shareholder approval really harms the 'value is too low/improperly negotiated argument'," Hoeg tweeted. "It's not nothing, but compared to everything else Activision (and Microsoft) have going's pretty darn close."

Still, hurdles remain. Microsoft's acquisition of Activision Blizzard is subject to regulatory approval, which could be troublesome, and while some lawsuits have been settled, others continue to pile up: In March an Activision Blizzard employee filed a lawsuit calling for Kotick's removal as CEO because of his failure to address the company's problems.

In an email sent to PC Gamer, an Activision Blizzard representative said the company will fight the complaint. "We disagree with the allegations made in this complaint and look forward to presenting our arguments to the Court," the rep said.

Andy Chalk

Andy has been gaming on PCs from the very beginning, starting as a youngster with text adventures and primitive action games on a cassette-based TRS80. From there he graduated to the glory days of Sierra Online adventures and Microprose sims, ran a local BBS, learned how to build PCs, and developed a longstanding love of RPGs, immersive sims, and shooters. He began writing videogame news in 2007 for The Escapist and somehow managed to avoid getting fired until 2014, when he joined the storied ranks of PC Gamer. He covers all aspects of the industry, from new game announcements and patch notes to legal disputes, Twitch beefs, esports, and Henry Cavill. Lots of Henry Cavill.