Activision CEO stands to reap nearly $400 million in Microsoft
deal, and that may be just the start
8:27 am ET January 19,
2022 (MarketWatch)
By Jeremy C. Owens
Kotick's stock compensation has long been a sore point for some
Activision investors, and now he stands to make millions while
reportedly exiting videogame publisher after deal closes
Activision Blizzard Inc. Chief Executive Bobby Kotick stands to
make nearly $400 million from Microsoft
Corp.'s acquisition of the videogame maker, and could reap
millions more whether he stays or not.
Activision (ATVI) agreed to be acquired by Microsoft (MSFT) for
$95 a share, the two companies announced Tuesday morning, the
largest acquisition in Microsoft history at a total value of nearly
$69 billion. While Microsoft said that Kotick -- whose reign at the
videogame publisher has long been controversial, and grew more so
after recent allegations of sexual harassment and a toxic workplace
environment -- would remain, the language it used in Tuesday's
press release suggested that his presence would only last through
the deal's closing.
Full news story: Microsoft bets on the metaverse with $69
billion deal for Activision Blizzard
"Bobby Kotick will continue to serve as CEO of Activision
Blizzard, and he and his team will maintain their focus on driving
efforts to further strengthen the company's culture and accelerate
business growth," the release reads, before using a different
subject in the next sentence to describe who will report to
Microsoft after the purchase is complete. "Once the deal closes,
the Activision Blizzard business will report to Phil Spencer, CEO,
Microsoft Gaming."
The Wall Street Journal reported Tuesday that Kotick will depart
the business after the deal closes, based on anonymous sources. If
he does, he will not leave empty-handed -- Kotick holds nearly 4.1
million shares of Activision Blizzard, which would be worth $388.9
million at the acquisition price to which Microsoft agreed, and
could still reap millions more from long-term stock incentives that
the Activision board controversially bestowed on him last year that
could still transfer even if he leaves the company after the deal
is done.
Kotick's compensation has been a sticking point for Activision
investors for years. Equilar Research determined that Kotick had
received $461 million in total compensation since Activision merged
with Blizzard parent company Vivendi Games in 2007, with more than
$300 million of that total in stock. Activision promised Kotick
another $150 million in long-term stock awards in 2020, despite
vocal opposition to the amount of compensation he was receiving,
and terms of that deal suggest he could still get the money even if
he is asked to leave after the deal completes.
The videogame publisher had to pause its annual meeting last
year to rally shareholders to vote for the compensation package,
which still received support from only 54% of shareholders, the
sixth time in the past eight years that fewer than 70% of
shareholders had voted positively in what is called a "Say on Pay"
proposal. Activision said it held more than 70 meetings with large
shareholders between the 2020 and 2021 annual meetings, yet the
percentage of votes supporting the executive compensation fell in
that time from 57% to 54%. Kotick has been under even more fire
since, as allegations of a toxic workplace were followed by reports
that Kotick knew of problems within Activision and did not inform
the board
Kotick's employment agreement has a clause for a change of
control that suggests he will still receive the $150 million in
stock that was agreed upon last year, even if he does leave the
company amid the controversy. The newest employment agreement
Kotick signed includes language allowing for a payout of the
long-term stock agreement if control of the company changes while
he is at the head and he is removed without cause or for "good
reason" within a year of the change.
"He can actually hold on to the options, exercise them or give
them back and get the cash equivalent immediately," accounting
professor and journalist Francine McKenna told MarketWatch, barring
Microsoft attempting to fire Kotick for cause.
"As long as there's not 'cause,' all of this compensation
remains," she said.
Cowen analysts said in a note Tuesday that Kotick stood to
receive a payout of as much as $293 million from the remaining
stock awards, and they also expect him to leave once the deal is
complete.
"Activision's agreement to sell appears to be a lucrative
admission that management is no longer confident in its ability to
effectively manage the business and its employees," the analysts
wrote.
Analysts' take on the deal: Microsoft could have just kicked off
a Big Tech gold rush, which helps videogame stocks but maybe not
gamers
Microsoft and Activision could write new language into the terms
of the deal that would preclude Kotick from cashing out that award,
or Kotick could leave of his own volition and leave it behind. An
Activision spokesman said the company would not have comment beyond
the blog post and news release regarding the merger, and Microsoft
did not respond to questions about the stock award.
No matter what happens to those shares, however, Kotick will
still hold more than 4 million shares he has already received, and
those will be his unless Microsoft or Activision attempt to claw
back any compensation. He could also receive more if the parties
reach a severance agreement.
Activision shares closed Tuesday up 25.9% at $82.31, which was
still well short of the price Microsoft agreed to pay. Even with
those gains, shares are down 10% in the past year, as the S&P
500 index has gained 23.7%.
-Jeremy C. Owens
0
0
