Activision, EA Resolve Issues - Analyst Blog

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Activision Blizzard Inc. ( ATVI ) and Electronic Arts Inc. ( EA ) have reached an amicable settlement with regard to their on-going legal dispute, according to Reuters. Though the terms of settlement related to contract interference claims were not disclosed, the $400 million suit that Activision filed against EA will now be set aside.

In March last year, Activision brought charges against EA alleging that the latter had secretly negotiated with two of the formers' employees who were still officially under contract with Activision. The employees happened to be Jason West and Vince Zampella, the founders of Infinity Ward, famous for the Call of Duty series.

Activision alleged that in 2009 the two developers had hired agents and secretly met and negotiated with EA executives, who were still working at Activision. Activision had complained that EA, aided by Creative Artists Agency, allegedly flew West and Zampella by a private jet from Southern California to San Francisco to attend a barbecue at Electronic Arts CEO John Riccietello's house, in August 2009.

We believe that the legal battle would not have benefited any of the parties, as this kind of trial takse a long time to yield any results. Thus, both the companies can now concentrate on the business they do best -- produce games.

Despite the settlement with EA, Activision will still have to deal with another $36 million lawsuit that was filed by West and Zampella against Activision, alleging that the company terminated them so that it could avoid making royalty payments on Call of Duty: Modern Warfare 2 .

The trial for this lawsuit is scheduled on May 29, 2012. Interestingly, Activision in a regulatory filing revealed that its claim damages would amount to $1 billion, a sharp increase versus the original claim of $36 million.

Activision would definitely seek to dismiss the claims when it goes on trial. However, its filing indicates that it expects to part with the cash. To make matters worse, Activision's first quarter 2012 performance was a big disappointment, as revenue and income both fell on year-over-year basis.

Notably, in March this year, a California Superior Court Judge dismissed a fraudulent-inducement claim by West and Zampella against Activsion, but agreed to conduct a full hearing on the claim for promissory fraud. Further proceedings in the case will be watched closely by investors due to the sheer amount of the claim damages, and any negative ruling would act as a headwind for the company.

Moreover, the softness in the video game industry and Activision's limited presence in the social gaming market coupled with significant competition from EA and Take-Two Interactive Software Inc. ( TTWO ) keep us Neutral on the stock over the long term.

However, the release of Diablo III and Battleship is expected to boost the near-term results. Moreover, sales of PROTOTYPE 2 , released in April, would come in full effect in the second quarter of 2012.

Additionally, Activision is focused on building a number of franchises that will drive its top and bottom lines in 2012 and beyond. The company's foray into the mobile gaming market is expected to be a long-term positive.

Currently, Activision Blizzard has a Zacks #3 Rank, which implies a Hold rating in the short term.


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: ATVI , EA , TTWO

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