Relevant Document:
Merger Agreement
Takeaways
- Microsoft Corp. and Activision Blizzard Inc. filed a definitive merger agreement with the SEC reflecting the companies’ agreement pursuant to which Microsoft will acquire Activision Blizzard in an all-cash transaction valued at $68.7 billion, inclusive of Activision Blizzard’s net cash.
- Under the terms of the merger agreement, Microsoft will acquire Activision Blizzard for $95 per share.
- The transaction will require majority Activision Blizzard stockholder approval, antitrust clearance pursuant to the HSR Act in the United States and regulatory clearances in the international jurisdictions set forth in Activision Blizzard’s nonpublic disclosure schedule. Under the terms of the merger agreement, Microsoft’s divestiture obligations are capped at a material adverse impact.
- The agreement also provides for a $2.27 billion termination fee payable by Activision Blizzard, and a $2 billion, $2.5 billion or $3 billion reverse termination fee payable by Microsoft in connection with certain terminations of the agreement related to antitrust approval.
- The companies say they expect to close the transaction in fiscal year 2023. Microsoft’s current fiscal year 2022 ends on June 30.
Microsoft Corp. and Activision Blizzard Inc. filed a definitive merger agreement with the SEC reflecting the companies’ agreement pursuant to which Microsoft will acquire Activision Blizzard in an all-cash transaction valued at $68.7 billion, inclusive of Activision Blizzard’s net cash.
Under the terms of the merger agreement, Microsoft will acquire Activision Blizzard for $95 per share.
The transaction will require majority Activision Blizzard stockholder approval, antitrust clearance pursuant to the HSR Act in the United States and regulatory clearances in the international jurisdictions set forth in Activision Blizzard’s nonpublic disclosure schedule.
Under the terms of the merger agreement, Microsoft’s divestiture obligations are capped at a material adverse impact.
The agreement also provides for a $2.27 billion termination fee payable by Activision Blizzard, and a $2 billion, $2.5 billion or $3 billion reverse termination fee payable by Microsoft in connection with certain terminations of the agreement related to antitrust approval.
The companies say they expect to close the transaction in fiscal year 2023. Microsoft’s current fiscal year 2022 ends on June 30.
Transaction Details
Consideration
Under the terms of the merger agreement, Microsoft will acquire Activision Blizzard for $95 per share.
Closing Conditions
The merger agreement includes customary closing conditions, including required regulatory approvals:
- Activision Blizzard stockholder approval. The transaction will require the affirmative vote of the holders of a majority of the outstanding shares of Activision Blizzard common stock entitled to vote.
- HSR waiting period. The waiting period applicable to the transaction under the HSR Act needs to expire or be terminated.
- International regulatory approvals. The agreement provides for any applicable foreign antitrust or foreign investment laws approvals, including the approvals set forth in Activision Blizzard’s nonpublic disclosure letter.
The merger agreement also lists the following closing conditions: no burdensome condition, no regulatory restraint, representations and warranties, covenants and no Activision Blizzard material adverse effect.
Limitations on Divestitures / Regulatory Best Efforts
Under the terms of the merger agreement, Microsoft’s divestiture obligations are capped at a material adverse impact. Microsoft is not obligated to agree to any divestitures to the extent any such action(s) would reasonably be expected to (1) have a material adverse impact on Activision Blizzard and its subsidiaries, taken as a whole, (2) have a material impact on the benefits expected to be derived from the merger by Microsoft or (3) have a more than immaterial impact on any business or product line of Microsoft.
The agreement defines the limit on Microsoft’s divestiture obligations as a “burdensome condition.”
Microsoft and Activision Blizzard are to (1) file their respective notification and report forms pursuant to the HSR Act promptly following the date of the merger agreement and (2) promptly file comparable pre-merger or post-merger notification filings, forms and submissions with any governmental authority that are required by other applicable antitrust laws or foreign investment laws.
Timing
The closing is to take place no later than the third business day after the satisfaction of required conditions.
The termination date is Jan. 18, 2023; provided that if all conditions have been satisfied, other than HSR antitrust clearance, all other applicable regulatory approvals and/or no regulatory restraint (solely in connection with an antitrust law or foreign investment law), then the termination date will automatically be extended to April 18, 2023, and then again to July 18, 2023, if those same conditions remain outstanding, unless Microsoft and Activision Blizzard mutually agree prior to such time in writing that the termination date “will not be so extended.”
Company Termination Fee
Activision Blizzard will be obligated to pay Microsoft a $2,270,100,000 termination fee in the event that the merger agreement is terminated (1) by Activision Blizzard to enter into a superior proposal or (2) by Microsoft for an Activision Blizzard board company board recommendation change.
Activision Blizzard will also be obligated to pay Microsoft the $2,270,100,000 termination fee in the event that the merger agreement is terminated (1) by either party for the termination date or failure to obtain Activision Blizzard stockholder approval or (2) by Microsoft for Activision Blizzard’s breach, where (a) an acquisition proposal was announced prior to such termination, and (b) within one year of such termination, Activision Blizzard enters into an agreement with respect to an acquisition transaction.
Parent Termination Fee
Microsoft will be obligated to pay Activision Blizzard the parent reverse termination fee in the event that the merger agreement is terminated by either party for (1) any final non-appealable restraint due to an injunction arising from antitrust laws or (2) the termination date, where the only conditions that remains outstanding are HSR antitrust clearance and/or no regulatory restraint (solely in connection with an antitrust law).
The agreement provides that (1) if the termination notice is provided prior to Jan. 18, 2023, then the amount payable by Microsoft is $2 billion, (2) if the termination notice is provided after Jan. 18, 2023, and prior to April 18, 2023, then the amount payable by Microsoft is $2.5 billion, and (3) if the termination notice is provided at any time after April 18, 2023, then the amount payable by Microsoft is $3 billion.
Material Adverse Effects
The carve-outs from the definition of any Activision Blizzard material adverse effect look standard and include: (1) changes in general economic conditions in the United States or any other country or region in the world; (2) changes in conditions in the global economy generally; (3) changes in conditions in the financial markets, credit markets or capital markets; (4) any effect generally affecting the industries in which Activision Blizzard and its subsidiaries conduct business; (5) changes in regulatory, legislative or political conditions; (6) any geopolitical conditions, outbreak of hostilities, acts of war, sabotage, terrorism or military actions; (7) earthquakes, hurricanes, tsunamis, tornadoes, floods, mudslides, wildfires or other natural disasters; (8) weather conditions and other similar
force majeure events; (9) any epidemics, pandemics or contagious disease outbreaks, including Covid-19 and any Covid-19 measures; (10) any political or social conditions, including civil unrest, protests and public demonstrations; (11) changes in the price or trading volume of Activision Blizzard’s common stock or indebtedness, in and of itself; (12) any failure, in and of itself, by Activision Blizzard and its subsidiaries to meet any public estimates or expectations of the company’s revenue, earnings or other financial performance or results of operations for any period; and (13) any of the matters set forth in Activision Blizzard’s nonpublic disclosure letter.
Nonsolicitation / Change in Recommendation
There is a standard nonsolicitation provision prohibiting Activision Blizzard from soliciting or initiating an acquisition proposal or engaging in any related discussions or negotiations. There is a standard fiduciary-out provision enabling Activision Blizzard to furnish information to and/or engage in discussions with any third party that makes an unsolicited bona fide written acquisition proposal to Activision Blizzard after the date of the agreement until Activision Blizzard obtains the requisite stockholder approval.
The Activision Blizzard board is permitted to effect a company board recommendation change in connection with Activision Blizzard’s receipt of a superior proposal and/or an intervening event. There is a standard three-business-day matching period for Microsoft in connection with any proposed company board recommendation change by the Activision Blizzard board.
The definition of intervening event looks standard and refers to any positive change, effect, development, circumstance, condition, event or occurrence that (1) materially improves the business, assets or operations of Activision Blizzard, (2) as of the date of the merger agreement was not known to the Activision Blizzard board, or the consequences of which were not reasonably foreseeable as of the date of the agreement, and (3) is not related to an acquisition proposal.
Financing
Microsoft has represented and warranted that it has available and will have available at the effective time the funds necessary for the payment of all amounts payable pursuant to article II in connection with or as a result of the merger.
Governing Law / Jurisdiction
Delaware law governs the merger agreement, and the parties submit to the jurisdiction of the Delaware courts.
Advisors
Allen & Co. is serving as financial advisor to Activision Blizzard, and Skadden is its legal advisor.
Goldman Sachs is serving as financial advisor to Microsoft, and Simpson Thacher is its legal advisor.
Reorg’s previous coverage of this transaction can be found
HERE.