A surprising twist has come about in this saga of Microsoft trying to acquire Activision Blizzard King, that regulators should pay close attention to when they debate the merits of allowing the deal to go through.
As reported by Exputer, the company has hired financial services giant Morgan Stanley to give them activism defense. So now you would be wondering, what is activism defense, and what does this have to do with the Microsoft – Activision deal?
Activision’s primary concern here is what would happen to the company if the situation arose that the deal doesn’t push through. Microsoft and Activision already have a lot of plans laid out, including projects that their board and investors would already know about. While Activision Blizzard King is a profitable enterprise on its own, Activision’s worry is that FUD would lead someone to try a hostile takeover or something similar in case the deal does not push through.
Enter the activist investor. Contrary to what the name implies, activist investors do not go out to advocate for a particular cause. These are investors who seek to take partial or full control of a company and how it is run. They start by buying a partial amount of shares in the company, and then they start talking to other investors, to coerce or convince them there needs to be a change in said company.
The most famous of these activist investors is Carl Icahn, who famously undertook a corporate raid on Trans World Airlines. He bought half the companies’ shares in 1985, forced a leveraged buyout to take it completely in 1988, and then proceeded to sell off TWA’s assets piece by piece, ultimately being forced out the company as it filed for bankruptcy in 1992.
Not all activist investors do corporate raids, as they can find other ways to make money out of undermining a company’s business. For example, in the case of a merger arbitrage, an investor could force the price of a company’s stock to change via mergers or acquisitions, and then make a profit by speculating on that stock price change.
Activision’s reported activist investor is Elliot Management, who have already made similar operations vs other companies. Morgan Stanley’s job as activism defense is to advice Activision on how to protect themselves from a corporate raid or similar strategies Elliot might take to take control of the company, either by taking ownership, or undermining its value, or other ways.
One possible scenario related to the CMA’s recommendation that Activision spin off Call of Duty from the company. Elliott could put pressure on Activision and Microsoft to make such a deal go through, for their personal profit.
While Activision Blizzard King’s own actions against their own employees have often been to the company’s detriment, activist investors muddling into the Microsoft deal is also harmful to them as well. This may only be preparatory work for the company for now. Hopefully, it’s a move that they won’t have to follow through on.
