Oracle of Omaha and legendary investor Warren Buffett announced an increased position in a video game stock as a potential arbitrage opportunity.
Berkshire Hathaway took an initial position in the video game maker back in the fourth quarter of 2021. It was then announced in mid-January that Microsoft Corp MSFT was acquiring Activision Blizzard.
Buffett said that when a merger is announced, the security becomes different as it no longer trades based on market value, but rather on the potential of the event happening.
The events, which are often called arbitrage opportunities, offer a potential payout of the premium on where shares trade.
Buffett said when shares shot up to the high $80s on the deal announcement versus a buyout offer of $95 a share, he wasn’t as interested.
When shares fell, he became more interested in accumulating more shares. Berkshire Hathaway bought more Activision shares in the first quarter, as announced by Buffett Saturday.
“We now own 9.5% of Activision,” Buffett said. The investor said if Berkshire’s stake goes over 10% it will issue a filing with the SEC.
“If the deal goes through, we make some money,” he noted.
Buffett said it is unclear what the Justice Department or European Union will do in terms of letting the deal go through. “One thing we do know is that Microsoft has the money.”
Why It’s Important: Buffett again confirmed that Berkshire Hathaway had no prior knowledge of Microsoft’s intentions of acquiring Activision before it took a stake in the game company, instead investing after an assessment that the company was undervalued.
Buffett said Berkshire Hathaway previously invested in lots of arbitrage opportunities, but hasn’t seen the same profit opportunity of late.
Examples of previous investment deals were Monsanto getting acquired by Bayer and Red Hat getting acquired by International Business Machines IBM, Buffett recalled.
On Saturday, Buffett also announced that Berkshire Hathaway had increased its ownership in both Chevron Corp CVX and Occidental Petroleum Corp OXY in the first quarter.
Price Action: Activision Blizzard shares closed Friday at $75.60, according to Benzinga Pro. Shares hit a year-to-date high of around $87 in January.
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.