Activision is investigating allegations a company it had met with in an effort to acquire blockbuster studio Infinity Ward, paid off members of the development team and withheld information on their plans.
Activision CEO Bobby Kotick was in a meeting with an option buyer on December 5th. The option buyer wanted to buy Activision stock at $11.00 per share. The meeting ended without any agreement, but the option buyer did not walk away from the meeting empty-handed.
According to people familiar with the situation, authorities investigating timely trading in Activision Blizzard Inc. ATVI -0.31 percent securities are looking into at least one meeting between the videogame company’s CEO and one of three traders days before they placed a large bet on Activision shares.
In the week before Mr. von Furstenberg and media moguls Barry Diller and David Geffen acquired options to buy Activision shares for $40 apiece on Jan. 14, Activision CEO Bobby Kotick met with Alexander von Furstenberg. The options deal, which created an unrealized profit of roughly $59 million, was set up only days before Activision agreed to be purchased by Microsoft Corp. for $95 per share, according to The Wall Street Journal.
According to persons familiar with the situation, the Justice Department is looking into whether the options deal violated insider trading regulations. The Securities and Exchange Commission is also looking into civil insider trading, according to the sources.
In an interview with the Journal, Mr. Diller said that none of the men had any important nonpublic knowledge regarding the Microsoft-Activision agreement. Regulators had contacted them, he acknowledged.
Mr. Diller replied in an email to the Journal on Thursday, “We had zero knowledge of that transaction and it stretches credulity to suppose that if we had, we would have continued.” “It’s also doubtful that Mr. Kotick, a smart professional, would have informed Mr. von Furstenberg and his wife about the forthcoming transaction at a social breakfast.”
According to a source familiar with the situation, Mr. von Furstenberg revealed his breakfast meeting with Mr. Kotick to law enforcement officials who interrogated him about the sale. The Journal has reached out to Messrs. von Furstenberg and Geffen for comment, but they have yet to reply.
According to a source familiar with the situation, Alex von Furstenberg mentioned his encounter with Mr. Kotick to law enforcement officials who interrogated him about the deal.
courtesy of Getty Images/Drew Angerer
The position of Mr. Kotick in the probe was unknown. According to several of the individuals, he hasn’t been questioned by police enforcement. The Justice Department did not respond to a request for comment. The Securities and Exchange Commission (SEC) refused to comment.
An Activision representative claimed, “Mr. Kotick enjoyed a social brunch with his pals at a prominent restaurant.” “Of course, he didn’t share any information with them about a probable Microsoft deal.”
The encounter between Messrs. von Furstenberg and Kotick adds to Activision’s and Mr. Kotick’s rising regulatory pressure. The SEC is looking into how Mr. Kotick and other Activision officials handled workplace misconduct complaints, according to the Journal, which cited documents and sources familiar with the probe. Since the Microsoft transaction was publicized, that investigation, as well as one undertaken by the California Department of Fair Employment and Housing, has intensified. Activision has said that it is complying with the SEC investigation, describing the California state agency’s recent decision to request police documents as “an unprecedented fishing expedition.”
Since a July complaint from a California state agency alleging a culture of sexual harassment and gender pay discrepancy, Mr. Kotick and Activision have been under increasing scrutiny from workers, investors, and regulators. According to the Journal, Microsoft approached Mr. Kotick about a potential transaction shortly after the Journal revealed in November that Mr. Kotick was aware of sexual harassment allegations but failed to submit them to Activision’s board of directors. Mr. Kotick has said that he has been open and honest with his board of directors, and Activision has referred to the Journal’s article as “misleading.”
An $18 million settlement between Activision and the Equal Employment Opportunity Commission, which has been investigating Activision since 2018, was granted by a federal court on Wednesday.
Regulatory probes, according to experts, are unlikely to derail the Microsoft merger unless there is a “significant unfavorable change” that would impair the transaction’s value, which is anticipated to conclude next year. According to sources familiar with the situation, Mr. Kotick is unlikely to stay at Microsoft.
According to securities documents, if Microsoft walks away from the transaction after April 18, 2023, it must pay Activision a $3 billion breakup fee. Activision will have to pay $2.3 billion if it backs out of the arrangement.
Prior to the options exchange, none of the men had any relevant nonpublic knowledge regarding the Microsoft-Activision merger, according to Barry Diller.
Nikki Ritcher for The Wall Street Journal
Mr. von Furstenberg arranged the options trade through JPMorgan Chase & Co. for himself and Messrs. Diller and Geffen, according to some of the people familiar with the matter. Mr. Geffen believed Activision was undervalued and would be acquired or taken private, and first contacted Mr. Diller with the idea for the trade, according to Mr. Diller.
Mr. Diller added in the email, “It’s a basic circumstance and a simple happenstance that occurred over the course of two work days.” “All of the material and data we’re handing over to the investigators will back that up.” I didn’t wait till I was 80 to take part in such blatant deception.”
Mr. Diller’s stepson, Mr. von Furstenberg, is a longstanding acquaintance of Messrs. Diller and Geffen. According to persons acquainted with the two men’s friendship, Mr. Kotick has been a longstanding friend of Messrs. Diller and von Furstenberg.
At the time of the deal, Activision’s stock was trading about $63 per share, indicating that the options were already profitable to exercise, or “in the money.” If Activision’s stock price climbed, option holders would benefit more.
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According to his LinkedIn profile and Ranger’s website, Mr. von Furstenberg is the founder and chief investment officer of Ranger Global Advisors LLC, which handles his family’s money. According to the website, the business manages more than $1 billion in assets. Ranger Global Advisors’ officer refused to comment.
A trader who buys call options has the right to acquire shares at a specified price by a specific date. According to the sources, the three men have yet to exercise their options, which do not expire until early next year.
Traders that use options are often hoping to benefit on a price movement in the stock market. Because options are less expensive than stocks, they may magnify winnings when traders get it right, especially when they buy options that are “out of the money”—bets that aren’t lucrative at the time of purchase. Options that are “in the money” at the time of purchase are more costly and less risky since they may be exercised quickly and profitably.
According to the persons, the traders seem to have paid roughly $108 million for the opportunity to purchase 4.12 million Activision shares. Based on current trade prices, the options would be valued about $167 million if exercised today.
If the acquisition closes at the stated per-share price of $95, which Microsoft has indicated is likely around midyear, the value of the options would increase even more, compared to Activision’s stock closing price of $80.36 on Wednesday. The men’s profit might exceed $100 million if they retain the options through a closure at that price, according to the sources.
Dave Michaels and Kirsten Grind may be reached at [email protected] and [email protected], respectively.
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Activision Blizzard stock plunged after the company announced that it would be investigating a meeting between CEO Bobby Kotick and an option buyer. Reference: activision blizzard stock.
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