Activision Blizzard Inc.
Electronic Arts Inc.
) 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
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
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
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.
) keep us Neutral on the stock over the long term.
However, the release of
is expected to boost the near-term results. Moreover, sales of
, 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.
ACTIVISION BLZD (ATVI): Free Stock Analysis
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