Ex Activision CEO Blames Embracer for a Lawsuit Objecting the Merger with Microsoft; Embracer Responds in Kind

Former Activision Blizzard CEO Robert Kotick stepped down from his role on January 1, 2024, following the company's merger with Microsoft. During his last few years in the gaming industry, Kotick's figure became quite controversial, especially when a report from the Wall Street Journal alleged that the executive had long been aware of the harassment issues within the company and even faced personal accusations of wrongdoing against employees. In one incident, he was reportedly verbally abusive towards an assistant, even threatening to have her killed in a voicemail message, though an Activision Blizzard rep claimed the message was just hyperbolic. In another instance, Kotick reportedly threatened and then fired a flight attendant on his private jet after she accused the pilot of sexual harassment.

That's exactly where the lawsuit filed four years ago by the Swedish pension fund Sjunde AP-Fonden (AP7) takes off against Kotick, alleging that the executive (and the Activision Blizzard Board with him) rushed the sale to leave behind the scandals and the subsequent liability. AP7 additionally claims that the Board breached its duty of loyalty by choosing a quick exit over the company's long-term value, arguing that the sale price of $95 per share was too low because it was negotiated while the stock was artificially depressed by the ongoing scandals. Furthermore, Kotick himself was entitled to a golden parachute worth hundreds of millions of dollars as part of the deal.

The former Activision CEO begs to differ, as you would expect. To begin with, Kotick emphasized that Microsoft's offer of $95 per share represented a 45% premium over the stock price at the time of the announcement. In recent filings, the former executive noted that Activision's actual performance after 2022 fell short of nearly all long-term targets, indicating that the sale was a timely and beneficial exit for investors.

But the latest twist came in the most recent filing (available for reading on Scribd), in which Kotick accused another game publisher, the Embracer Group, of somehow colluding with AP7. Here are a few quotes:

• Plaintiff’s Board also has ties to a rival video game company, Embracer Group AB (“Embracer”), a Swedish gaming company that directly competes against Activision. The Vice Chair of Plaintiff’s board, Emma Ihre, served as an Embracer executive at the time that this lawsuit was filed in November 2022. As far as Mr. Kotick is aware, Plaintiff made no effort to address this clear conflict of interest, and neither did Embracer.
• Embracer was facing extreme economic turmoil in Fall 2022, and was grasping at ways to reverse the decrease in its stock price that occurred throughout 2022. The lawsuit did just that: Embracer’s stock price spiked immediately after AP7’s complaint was released to the public on November 9, 2022—by 15% from November 9 to 11, 2022. Indeed, the increase from November 9 to 10 was the largest one-day increase in Embracer’s stock price for the entire 2022 year. This benefitted not only Embracer, but also AP7 and Ms. Ihre (who owned significant shares in Embracer).
• Notably, this lawsuit was timed to occur just days before Embracer would be announcing disappointing financial results and the delay of its most highly anticipated game, Dead Island 2. Embracer announced these results and the delay of Dead Island 2 on November 17, 2022, which Embracer knew would exert downward.
• [...]this Delaware lawsuit was apparently aimed to help pave the way for Embracer to increase its foothold in the California market at the expense of Activision, making it more difficult for Activision to recruit talent and expand through M&A activity of the sort that Activision relied on to grow historically.
• Just two days before AP7 initiated this action, on November 1, 2022, Embracer announced that it was kicking off a “new PR and Communications team” based out of Livermore, California.
• The fact that this PR team was kicked off just two days before this suit was filed does not appear to be a coincidence—bad press for Activision would have made it easier for Embracer in its new “PR and Communications” campaign. By contrast, through its false claims in this suit, AP7 painted Activision as a company with poor corporate citizenship.
• This collateral attack on Activision also appears to be tied to Embracer’s desire to boost sales of its games while leaving Activision hamstrung in the development of its own games that competed against Embracer’s titles. Not only were multiple Activision games delayed or cancelled after this lawsuit was brought (including Odyssey, Overwatch 2 Hero Mode, and Call of Duty Warzone Mobile), but Embracer had a number of contemporaneous releases that it knew would compete against Activision’s titles.

According to Kotick and his lawyers, the contemporaneous releases were Dead Island 2 and Call of Duty Zombies, Insurgency and Call of Duty, Remnant 2 and Diablo IV, and Warlander and Overwatch 2.

Embracer has since refuted Kotick's allegations. In a statement to Game File, they said:

Embracer did not and does not need any help from a Swedish pension fund in competing with Activision. There was no coordination or collaboration between Embracer and AP7 relating to any of Mr. Kotick's statements. No agenda or instructions were directed from Embracer via Emma Ihre or directly to AP7.

We'll keep an eye on the developments of this lawsuit, which is far from over. Stay tuned.

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