Exclusive: Arbitrage Expert Julian Klymochko Explains Why Warren Buffett Is Buying Activision Blizzard Shares

Zinger Key Points
  • Berkshire Hathaway's stake in Activation Blizzard is a case of "heads we win, tails we win."
  • There is a risk with the Microsoft acquisition that antitrust regulators could block the deal.

One of the biggest video game deals of all time was announced in January with Microsoft Corporation MSFT saying they would acquire video game company Activision Blizzard Inc ATVI for $95 a share.

What Happened: With the deal still pending and shares trading well below the $95 level, Benzinga spoke to merger and arbitrage expert Julian Klymochko.

Klymochko is the CEO and Chief Investment Officer of Accelerate Funds, a company that offers ETFs, and alternative funds with arbitrage are among the market opportunities it offers investors. 

Klymochko has a history of analyzing mergers and often invests in the arbitrage opportunity of deals, or the amount that can be made if the deal closes. Klymochko recently estimated that he has invested in/analyzed over 2,500 mergers over the last 15 years.

Related Link: Exclusive: Arbitrage Expert Julian Klymochko Breaks Down Twitter Acquisition And Elon Musk’s Options

Activision Acquisition: Similar to the acquisition of Twitter Inc TWTR by Tesla Inc TSLA CEO Elon Musk, shares of the target company Activision are trading well below their buyout price, which offers a potential investment opportunity.

It was recently announced by Warren Buffett that Berkshire Hathaway Inc (NYSE: BRK-A)(NYSE: BRK-B) owns a 9.5% stake in Activision Blizzard, seeing an opportunity to capture the deal spread with shares trading well below the acquisition price.

“It appears to be a wise investment by Buffett because his team liked the stock before the deal. It could be a case of ‘heads we win, tails we win’ because the successful arbitrage could bring a 22% annualized return, while they would still like the stock as a hold in the case in which the deal breaks,” Klymochko said.

There is some degree of risk with the Microsoft acquisition, as antitrust regulators could block the deal. Klymochko thinks this shouldn’t be a huge risk.

“The main risk in Microsoft’s acquisition of Activision is an overzealous antitrust regulator looking to make a case against ‘big tech’ and taking the parties to court to block the deal, despite them not having much horizontal overlap. The video game business is highly competitive. When the transaction closes, Microsoft will become the world’s third-largest gaming company by revenue behind Tencent and Sony, which would not be an insurmountable issue under a normal antitrust regime.”

Price Action: Activision Blizzard shares closed Friday at $77.84.

Posted In: Accelerate FundsExclusiveJulian KlymochkoMerger ArbitrageVideo Game StocksWarren BuffettM&AExclusivesTrading IdeasInterview