Opinion of Activision Blizzard’s Financial Advisor
Activision Blizzard has engaged Allen & Company as financial advisor to Activision Blizzard in connection with the merger. In connection with this engagement, Activision Blizzard requested that Allen & Company render an opinion to the Activision Blizzard Board of Directors regarding the fairness, from a financial point of view, of the merger consideration to be received by holders of Activision Blizzard common stock pursuant to the merger agreement. On January 17, 2022, at a meeting of the Activision Blizzard Board of Directors held to evaluate the merger, Allen & Company rendered an oral opinion, which was confirmed by delivery of a written opinion dated January 17, 2022, to the Activision Blizzard Board of Directors to the effect that, as of that date and based on and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken described in its opinion, the merger consideration to be received by holders of Activision Blizzard common stock (other than, to the extent applicable, Microsoft, Sub and their respective affiliates) pursuant to the merger agreement was fair, from a financial point of view, to such holders.
The full text of Allen & Company’s written opinion, dated January 17, 2022, which describes the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken, is attached to this proxy statement as Annex C and is incorporated by reference herein in its entirety. The description of Allen & Company’s opinion set forth in this proxy statement is qualified in its entirety by reference to the full text of Allen & Company’s opinion. Allen & Company’s opinion and advisory services were intended for the benefit and use of the Activision Blizzard Board of Directors (in its capacity as such) in connection with its evaluation of the merger consideration from a financial point of view and did not address any other terms, aspects or implications of the merger. Allen & Company’s opinion did not constitute a recommendation as to the course of action that Activision Blizzard (or the Activision Blizzard Board of Directors or any committee thereof) should pursue in connection with the merger or otherwise address the merits of the underlying decision by Activision Blizzard to engage in the merger, including in comparison to other strategies or transactions that might be available to Activision Blizzard or which Activision Blizzard might engage in or consider. Allen & Company’s opinion does not constitute advice or a recommendation to any securityholder or other person as to how to vote or act on any matter relating to the merger or otherwise.
Allen & Company’s opinion reflected and gave effect to Allen & Company’s general familiarity with Activision Blizzard and the industry in which Activision Blizzard operates as well as information that Allen & Company received during the course of its assignment, including information provided by the management of Activision Blizzard in the course of discussions relating to the merger as more fully described below. In arriving at its opinion, Allen & Company neither conducted a physical inspection of the properties or facilities of Activision Blizzard or any other entity nor made or obtained any evaluations or appraisals of the assets or liabilities (contingent, accrued, derivative, off-balance sheet or otherwise) of Activision Blizzard or any other entity, or conducted any analysis concerning the solvency or fair value of Activision Blizzard or any other entity. Allen & Company did not investigate, and expressed no opinion or view regarding, any actual or potential litigation, proceedings or claims involving or impacting Activision Blizzard or any other entity and Allen & Company assumed, with Activision Blizzard’s consent, that there would be no developments with respect to any such matters that would be meaningful in any respect to its analyses or opinion.
In arriving at its opinion, Allen & Company, among other things:
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reviewed the financial terms of a draft, dated January 17, 2022, of the merger agreement;
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reviewed certain publicly available historical business and financial information relating to Activision Blizzard, including public filings of Activision Blizzard, and historical market prices for Activision Blizzard common stock;
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reviewed certain financial information relating to Activision Blizzard, including certain internal financial forecasts, estimates and other financial and operating data relating to Activision Blizzard, provided to or discussed with Allen & Company by the management of Activision Blizzard;
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held discussions with the management of Activision Blizzard relating to the operations, financial condition and prospects of Activision Blizzard;
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reviewed and analyzed certain publicly available information, including certain stock market data and financial information, relating to selected companies with businesses that Allen & Company deemed generally relevant in evaluating Activision Blizzard;
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reviewed and analyzed certain publicly available financial information relating to selected transactions that Allen & Company deemed generally relevant in evaluating the merger; and
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conducted such other financial analyses and investigations as Allen & Company deemed necessary or appropriate for purposes of its opinion.
In rendering its opinion, Allen & Company relied upon and assumed, with Activision Blizzard’s consent and without independent verification, the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information available to Allen & Company from public sources, provided to or discussed with Allen & Company by the management and other representatives of Activision Blizzard or otherwise reviewed by Allen & Company. With respect to the financial forecasts, estimates and other financial and operating data relating to Activision Blizzard that Allen & Company was directed to utilize for purposes of its analyses and opinion, Allen & Company was advised by the management of Activision Blizzard and Allen & Company assumed, at Activision Blizzard’s direction, that such financial forecasts, estimates and other financial and operating data were reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of such management as to, and were a reasonable basis upon which to evaluate, the future financial and operating performance of Activision Blizzard and the other matters covered thereby. Allen & Company expressed no opinion or view as to any financial forecasts, estimates or other financial or operating data or the assumptions on which they were based.
Allen & Company relied, at Activision Blizzard’s direction, upon the assessments of the management of Activision Blizzard as to, among other things, (i) the potential impact on Activision Blizzard of certain market, competitive, macroeconomic, seasonal, cyclical and other conditions, trends and developments in and prospects for, and governmental, regulatory and legislative policies and matters relating to or otherwise affecting, the interactive entertainment industry, (ii) existing and new products, franchises and related intellectual property and other technology of Activision Blizzard (including associated risks), (iii) workforce matters and related litigation, investigations, consent decrees and other proceedings, including the potential impact thereof on Activision Blizzard, (iv) implications for Activision Blizzard and its operations of the global COVID-19 pandemic, and (v) existing and future agreements and arrangements involving, and the ability to attract, retain and/or replace, key employees and contractors, customers, third-party developers, manufacturers, distributors and other commercial relationships of Activision Blizzard. With Activision Blizzard’s consent, Allen & Company assumed that there would be no developments with respect to any such matters that would have an adverse effect on Activision Blizzard or the merger or that otherwise would be meaningful in any respect to its analyses or opinion.
Further, Allen & Company’s opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Allen & Company as of, the date of its opinion. It should be understood that subsequent developments may affect the conclusion expressed in Allen & Company’s opinion and that Allen & Company assumed no responsibility for advising any person of any change in any matter affecting Allen & Company’s opinion or for updating or revising its opinion based on circumstances or events occurring after the date of such opinion. As the Activision Blizzard Board of Directors was aware, the credit, financial and stock markets, the industry in which Activision Blizzard operates and the securities of Activision Blizzard have experienced and may continue to experience volatility and Allen & Company expressed no opinion or view as to any potential effects of such volatility on Activision Blizzard or the merger.
Allen & Company assumed, with Activision Blizzard’s consent, that the merger would be consummated in accordance with its terms and in compliance with all applicable laws, documents and other requirements, without waiver, modification or amendment of any material term, condition or agreement, and that, in the course of obtaining the necessary governmental, regulatory or third party approvals, consents, releases, waivers, decrees and agreements for the merger, no delay, limitation, restriction or condition, including any divestiture or other requirements or remedies, amendments or modifications, would be imposed or occur that would have an adverse effect on Activision Blizzard or the merger or that otherwise would be meaningful in any respect to Allen & Company’s analyses or opinion. In addition, Allen & Company assumed, with
Activision Blizzard’s consent, that the final executed merger agreement would not differ from the draft reviewed by Allen & Company in any respect meaningful to its analyses or opinion.
Allen & Company’s opinion was limited to the fairness, from a financial point of view and as of the date of such opinion, of the merger consideration (to the extent expressly specified in such opinion), without regard to individual circumstances of specific holders of Activision Blizzard common stock (whether by virtue of control, voting, liquidity, contractual arrangements or otherwise) that may distinguish such holders or the securities of Activision Blizzard held by such holders, and Allen & Company’s opinion did not in any way address proportionate allocation or relative fairness. Allen & Company’s opinion also did not address any other terms, aspects or implications of the merger, including, without limitation, the form or structure of the merger, any repurchase, payoff or similar transaction, cloud-related agreements or arrangements or any other agreements, arrangements or understandings entered into in connection with, related to or contemplated by the merger or otherwise. Allen & Company expressed no opinion or view as to the fairness, financial or otherwise, of the amount, nature or any other aspect of any compensation or other consideration payable to any officers, directors or employees of any party to the merger or any related entities, or any class of such persons or any other party, relative to the merger consideration or otherwise. Allen & Company did not express any opinion or view as to the prices at which Activision Blizzard common stock or any other securities of Activision Blizzard may trade or otherwise be transferable at any time, including following announcement or consummation of the merger. In addition, Allen & Company expressed no opinion or view with respect to accounting, tax, regulatory, legal or similar matters, including, without limitation, as to tax or other consequences of the merger or otherwise or changes in, or the impact of, accounting standards, tax and other laws, regulations and governmental and legislative policies affecting Activision Blizzard or the merger, and Allen & Company relied, at Activision Blizzard’s direction, upon the assessments of representatives of Activision Blizzard as to such matters. Allen & Company’s opinion did not constitute a recommendation as to the course of action that Activision Blizzard (or the Activision Blizzard Board of Directors or any committee thereof) should pursue in connection with the merger or otherwise address the merits of the underlying decision by Activision Blizzard to engage in the merger, including in comparison to other strategies or transactions that might be available to Activision Blizzard or which Activision Blizzard might engage in or consider.
In connection with its opinion, Allen & Company performed a variety of financial and comparative analyses, including those described below. The summary of the analyses below and certain factors considered is not a comprehensive description of all analyses undertaken or factors considered by Allen & Company. The preparation of a financial opinion or analysis is a complex process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion and analyses are not readily susceptible to summary description. Allen & Company arrived at its opinion based on the results of all analyses undertaken and assessed as a whole, and did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis. Accordingly, Allen & Company believes that the analyses and factors summarized below must be considered as a whole and in context. Allen & Company further believes that selecting portions of the analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses and factors, could create a misleading or incomplete view of the processes underlying Allen & Company’s analyses and opinion.
In performing its financial analyses, Allen & Company considered industry performance, general business and economic, market and financial conditions and other matters existing as of the date of its opinion, many of which are beyond the control of Activision Blizzard. No company, business or transaction reviewed is identical or directly comparable to Activision Blizzard, its businesses or the merger and an evaluation of these analyses is not entirely mathematical; rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the public trading, acquisition or other values of the companies, businesses or transactions reviewed. The assumptions and estimates of the future performance of Activision Blizzard in or underlying Allen & Company’s analyses and the implied reference ranges derived from any particular analysis are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than those estimates or those suggested by such analyses. These analyses were prepared solely as part of Allen & Company’s analysis of the fairness, from a financial point of view, of the merger consideration and were provided to the Activision Blizzard Board of Directors in connection with the delivery of Allen &
Company’s opinion. The analyses do not purport to be appraisals or to reflect the prices at which a company might actually be sold or the prices at which any securities have traded or may trade at any time in the future. Accordingly, the assumptions and estimates used in, and the reference ranges resulting from, any particular analysis described below are inherently subject to substantial uncertainty and should not be taken as the views of Allen & Company regarding the actual value of Activision Blizzard.
Allen & Company did not recommend that any specific consideration constituted the only appropriate consideration in the merger. The type and amount of consideration payable in the merger were determined through negotiations between Activision Blizzard and Microsoft, rather than by any financial advisor, and approved by the Activision Blizzard Board of Directors. The decision to enter into the merger agreement was solely that of the Activision Blizzard Board of Directors. Allen & Company’s opinion and analyses were only one of many factors considered by the Activision Blizzard Board of Directors in its evaluation of the merger and the merger consideration and should not be viewed as determinative of the views of the Activision Blizzard Board of Directors or management with respect to the merger or the consideration payable in the merger.
Financial Analyses
The summary of the financial analyses described in this section entitled “— Financial Analyses” is a summary of the material financial analyses provided by Allen & Company in connection with its opinion, dated January 17, 2022, to the Activision Blizzard Board of Directors. The summary set forth below is not a comprehensive description of all analyses undertaken by Allen & Company in connection with its opinion, nor does the order of the analyses in the summary below indicate that any analysis was given greater weight than any other analysis. The financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses performed by Allen & Company, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses performed by Allen & Company. Considering the data set forth in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses performed by Allen & Company. Future results may differ from those described and such differences may be material. For purposes of the financial analyses described below, (i) the term “Activision Blizzard forecasts” refers in this section to the internal financial forecasts, estimates and other financial and operating data relating to Activision Blizzard prepared by the management of Activision Blizzard as reflected in the January 2022 forecasts, and (ii) the term “EBITDA” means earnings before interest, taxes, depreciation and amortization, stock-based compensation expense and certain one-time non-recurring items, as applicable (referenced in the January 2022 forecasts as “Adjusted EBITDA”).
Selected Public Companies Analysis. Allen & Company reviewed certain publicly available financial and stock market information relating to Activision Blizzard and the following three selected publicly traded companies with operations in the interactive entertainment industry that Allen & Company considered generally relevant for purposes of analysis, collectively referred to as the “selected companies:”
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Take-Two Interactive Software, Inc.
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Electronic Arts Inc.
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Ubisoft Entertainment SA
Allen & Company reviewed, among other information, enterprise values, calculated as implied equity values based on closing stock prices on January 14, 2022, which is the last unaffected trading day prior to public announcement of the merger (except in the case of Take-Two Interactive Software, Inc., which was based on its unaffected closing stock price on January 7, 2022, prior to the announcement of its pending acquisition of Zynga Inc.) plus total debt and non-controlling interests (as applicable) and less cash and cash equivalents and unconsolidated assets, as applicable, as a multiple of calendar years 2022 and 2023 estimated EBITDA. Financial data of the selected companies were based on publicly available Wall Street research analysts’ estimates, public filings and other publicly available information. Financial data of Activision Blizzard was based on the Activision Blizzard forecasts and other information provided by the management of Activision Blizzard.
The overall low to high calendar year 2022 and calendar year 2023 estimated EBITDA multiples observed for the selected companies were 8.4x to 19.1x and 7.3x to 15.6x, respectively. Allen & Company then applied selected ranges of calendar year 2022 and calendar year 2023 estimated EBITDA multiples derived from the selected companies of 13.5x to 18.0x and 12.5x to 15.0x, respectively, to corresponding data of Activision Blizzard based on the Activision Blizzard forecasts. 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 Based On:
Reference Range Based On:
Merger Consideration
CY2022E EBITDA
