Activision Blizzard Inc. (ATVI) recently settled its long-standing legal dispute with its employees, Jason West and Vince Zampella. It was an out-of-court settlement and the terms were kept confidential. This comes as no surprise, given the settlement of the legal dispute regarding contract interference claims between Activision and Electronic Arts Inc. (EA) roughly two weeks ago.
Neither the terms of settlement nor the monetary outflow from Activision’s coffers were disclosed. However, the company stated that the one-time payment related to this settlement would not impact its GAAP and non-GAAP earnings outlook for the current quarter or the fiscal year.
For the current quarter the company expects to earn GAAP earnings per share of 13 cents and Non-GAAP earnings of 10 cents per share. For fiscal year 2012, Activision expects to earn GAAP and non- GAAP earnings of 65 cents and 95 cents, respectively.
Previously, Jason West and Vince Zampella headed the Infinity Ward division at Activision and were fired in March 2010. West and Zampella filed a $36 million lawsuit against Activision alleging that they were terminated so that the company could avoid making royalty payments on Call of Duty: Modern Warfare 2, the top-selling game in 2010.
West and Zampella also accused Activision of making false promises, including complete freedom in running the Infinity Ward, when it was reluctant to renew their contracts. In retaliation, Activision countersued both of them for breach of contact and alleged that the two developers had hired agents and secretly met and negotiated with EA executives while still working at Activision in 2009.
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.
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.
Looking Ahead
Activision expects a robust quarter with a blockbuster release of Diablo III. Moreover, games like Battleship and PROTOTYPE 2 are expected to lend support to its top line this quarter.
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.
However, 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.
Currently, Activision Blizzard has a Zacks #3 Rank, which implies a Hold rating in the short term.
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