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Chancery Denies Motion to Dismiss Challenge to Microsoft-Activision Merger Where it Was Reasonably Conceivable that the Board Violated Section 251 of the DGCL

AP-Fonden v. Activision Blizzard Inc., C.A. No. 2022-1001-KSJM (Del. Ch. Feb. 29, 2024)
This case arose from a stockholder-plaintiff’s challenge to a merger whereby Microsoft acquired Activision Blizzard. Activision’s board met to approve the merger and approved a draft merger agreement. However, this draft agreement did not include (i) a disclosure letter, which was mentioned 45 times in the draft agreement; (ii) disclosure schedules, which were still being negotiated; (iii) the amount of consideration; or (iv) the surviving corporation’s certificate of incorporation. The agreement as-approved also did not address the issue of dividends that Activision would be permitted to pay while the deal was pending; when it approved the merger agreement, the board delegated the dividend issue to an ad hoc committee of the board. The full board did not review the merger agreement after this meeting, and the final version executed the next day included several changes from the draft agreement, including the dividend provision agreed to by Microsoft and the ad hoc committee.

The plaintiff claimed that these actions violated Section 251(b) of the DGCL, which requires the board to adopt a resolution approving an agreement of merger, arguing the board must approve an execution version of the merger agreement. The Court denied the defendants’ motion to dismiss because it was reasonably conceivable that the board failed to comply with Section 251(b) by failing to approve an “essentially complete” version of the merger agreement. The Court similarly held that it was reasonably conceivable that the notice of the stockholders’ meeting to vote on the merger violated Section 251(c) of the DGCL because it attached a version of the merger agreement that did not include the surviving corporation’s charter. Finally, the Court held it was reasonably conceivable that the delegation of the dividend issue to a board committee violated Section 141(c)(2) of the DGCL, which prohibits the use of committees for actions that the DGCL requires to be approved by the board (here, merger agreements). The Court accordingly denied the defendants’ motions to dismiss.

Since this decision, the Delaware State Bar Association has proposed that the Delaware General Assembly adopt amendments to the DGCL concerning the process for approving merger agreements.

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