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Activision Downgraded to Sell by MKM on Sexual-Misconduct Matter

'Big changes are needed at the house Bobby built,' MKM says, referring to Activision CEO Bobby Kotick.
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MKM Partners downgraded Activision Blizzard  (ATVI) - Get Activision Blizzard, Inc. Report to sell from neutral and slashed its share-price target for the videogame company's shares to $54 from $75.

MKM analyst Eric Handler based his move on Activision’s sexual-misconduct scandal and the involvement of Chief Executive Bobby Kotick.

The stock recently traded at $61.03, down 2%. It has given back 23% in the past month amid the scandal.

“Big changes are needed at the house Bobby built,” Handler wrote in a commentary.

“The issues Activision is facing as a result of the California Department of Fair Employment and Housing lawsuit and other regulatory investigations into alleged sexual assaults and mistreatment of female employees are deeper than originally feared.”

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“We do not believe these problems are going to go away until a clear resolution is reached, starting with the removal of CEO Bobby Kotick.

“From what we have read from press reports and social media, employee morale is extremely low, which is likely to impact not only game development timelines but also quality. Business partnerships are also at risk.”

The Wall Street Journal reported last week that Kotick was aware of the sexual misconduct years before he said he was.

The paper, citing knowledgeable sources, reported Sunday that he told senior managers he would consider exiting if he can’t fix the problems pronto.

Handler noted that after The Journal’s initial story, groups of employees staged their second walkout in four months. 

In addition, an online petition requesting Kotick’s removal has been signed by nearly 1,800 employees with support across the organization.