| |
Implied Equity Value Per Share
Reference Range Based On: |
| |
Merger Consideration
|
|
| |
LTM EBITDA
|
| | | |
| |
$72.40 – $99.49
|
| |
$95.00
|
|
Discounted Cash Flow Analysis. Allen & Company performed a discounted cash flow analysis of Activision Blizzard by calculating, based on the Activision Blizzard forecasts, the estimated present value (as of December 31, 2021) of the standalone unlevered, after-tax free cash flows that Activision Blizzard was
forecasted to generate during the fiscal years ending December 31, 2021 through December 31, 2026. For purposes of this analysis, stock-based compensation was treated as a cash expense. Allen & Company calculated implied terminal values for Activision Blizzard by applying to Activision Blizzard’s unlevered, after-tax free cash flows for the fiscal year ending December 31, 2026 a selected range of perpetuity growth rates of 2.25% to 2.75% and a selected range of discount rates of 6.50% to 8.00%. This analysis indicated the following approximate implied equity value per share reference range for Activision Blizzard, as compared to the merger consideration:
| |
Implied Equity Value Per Share
Reference Range: |
| |
Merger Consideration
|
|
| |
$84.73 – $123.87
|
| |
$95.00
|
|
Certain Additional Information. Allen & Company observed certain additional information that was not considered as part of its financial analyses for its opinion but was noted for informational reference only, including the following:
•
historical trading prices of Activision Blizzard common stock during the 52-week period ended January 14, 2022, which indicated low to high intraday prices for Activision Blizzard common stock during such period of approximately $56.40 to $104.53 per share; and
•
publicly available Wall Street research analysts’ forward stock price targets for Activision Blizzard common stock, which indicated an overall low to high target price range for Activision Blizzard common stock of $54.00 to $125.00 per share (with a mean of $90.52 per share and a median of $90.00 per share).
Miscellaneous
Activision Blizzard selected Allen & Company as its financial advisor in connection with the merger based on, among other things, Allen & Company’s reputation, experience and familiarity with Activision Blizzard and the industry in which Activision Blizzard operates. Allen & Company, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, private placements and related financings, negotiated underwritings, secondary distributions of listed and unlisted securities, and valuations for corporate and other purposes. As the Activision Blizzard Board of Directors was aware, although during the two-year period prior to the date of its opinion Allen & Company did not provide investment banking services to Activision Blizzard unrelated to the merger or to Microsoft for which Allen & Company received compensation, Allen & Company in the future may provide such services to Activision Blizzard, Microsoft and/or their respective affiliates, for which Allen & Company would expect to receive compensation. In the ordinary course, Allen & Company as a broker-dealer and certain of its affiliates, directors and officers have invested or may invest, hold long or short positions and may trade, either on a discretionary or non-discretionary basis, for their own or beneficiaries’ accounts or for those of Allen & Company’s clients, in the debt and equity securities (or related derivative securities) of Activision Blizzard, Microsoft and/or their respective affiliates. The issuance of Allen & Company’s opinion was approved by Allen & Company’s opinion committee.
For Allen & Company’s financial advisory services, Activision Blizzard has agreed to pay Allen & Company an aggregate cash fee of $65 million, of which $10 million was payable upon delivery of Allen & Company’s opinion and $55 million is payable contingent upon consummation of the merger. Activision Blizzard also has agreed to reimburse Allen & Company’s reasonable expenses and to indemnify Allen & Company and related parties against certain liabilities, including liabilities under the federal securities laws, arising out of its engagement.
Treatment of Equity Compensation
Pursuant to our equity incentive plans, we have granted equity awards with respect to Activision Blizzard common stock in the form of stock options and stock units (i.e., RSUs and PSUs). Our executive officers hold options, RSUs, which represent a right to receive shares of Activision Blizzard common stock based on service over a time-based vesting schedule, and PSUs, which represent a right to receive shares of Activision Blizzard common stock ranging from 0 to 125% (and, in some cases, up to 250%) of the target
number of shares based on both service over a time-based vesting schedule and achievement of specified performance goals over a specified performance period. Our non-employee directors hold options and RSUs, which represent a right to receive shares of Activision Blizzard common stock, subject to vesting requirements of the underlying equity award, on a specified future date or event, such as a separation from service. The merger agreement provides for the treatment set forth below with respect to outstanding equity awards:
Stock Options
•
Each outstanding option to purchase Activision Blizzard common stock granted pursuant to our equity incentive plans that (i) is vested as of immediately prior to the effective time, or (ii) will become vested by its terms at the effective time will be cancelled and converted into the right to receive the merger consideration for each share of Activision Blizzard common stock that would have been issuable upon exercise of such option immediately prior to the effective time, less the applicable option exercise price for each such share of Activision Blizzard common stock underlying such option and any applicable withholding taxes.
•
Each option that is outstanding as of immediately prior to the effective time, and is not cancelled and converted as described above, and has an exercise price per share of Activision Blizzard common stock that is less than the merger consideration, will be, as of the effective time and as determined by Microsoft, (x) assumed by Microsoft and converted into a nonqualified stock option or (y) converted into a nonqualified stock option granted pursuant to Microsoft’s equity incentive plans, in either case, in respect of a number of shares of common stock of Microsoft equal to the product (rounded down to the nearest whole share) of (i) the number of shares of Activision Blizzard common stock subject to such assumed option as of immediately prior to the effective time (determined based on target performance levels, as applicable) multiplied by (ii) a fraction (A) the numerator of which is the merger consideration and (B) the denominator of which is Microsoft’s stock price (i.e., the volume weighted average price per share rounded to four decimal places (with amounts of 0.00005 and above rounded up) of common stock of Microsoft on Nasdaq for the five consecutive trading days ending with the last trading day ending immediately prior to the closing date) (which we refer to as the “exchange ratio”), at an exercise price per share of common stock of Microsoft equal to (i) the exercise price of such option divided by (ii) the exchange ratio (rounded up to the nearest whole cent) rounded down to the nearest whole number of shares. In each case of clauses (x) and (y) of this paragraph, the terms and conditions relating to vesting and exercisability will remain the same with respect to Activision Blizzard options subject to time-based vesting, and with respect to Activision Blizzard options subject to performance-based vesting will be converted into time-based vesting options (determined based on target performance levels) that will vest at the conclusion of the original performance period.
•
In the event that the exercise price per share under any option is equal to or greater than the merger consideration, such option will be cancelled as of the effective time without payment therefor and will have no further force or effect.
Stock Units
•
Each outstanding award of RSUs or PSUs granted pursuant to Activision Blizzard’s equity incentive plans that (i) is vested as of immediately prior to the effective time, (ii) will become vested by its terms at the effective time or (iii) is granted to a non-employee member of the Activision Blizzard Board of Directors, will, as of the effective time, be cancelled and converted into the right to receive the merger consideration with respect to each share of Activision Blizzard common stock subject to such award, less any applicable withholding taxes.
•
Each outstanding award of RSUs or PSUs that is outstanding as of immediately prior to the effective time and is not cancelled and converted as described above, will, as of the effective time, be, as determined by Microsoft (x) assumed by Microsoft and converted into a stock-based award or (y) converted into a stock-based award pursuant to Microsoft’s equity incentive plans, in either case, in respect of a number of shares of common stock of Microsoft equal to the product (rounded down to the nearest whole share) of (i) the number of shares of Activision Blizzard common stock
