Last year, Warren Buffett announced that he’d purchased 9.5% of Activision Blizzard (NASDAQ:ATVI) through Berkshire Hathaway. The Wall Street mogul bought masses of shares after Microsoft announced that it would acquire the gaming specialist.
Buffett has bet nearly $5bn on the acquisition going ahead. Should I do the same with the smaller amount of cash I have available?
Microsoft’s monopoly
To the shock of the entire video game industry, tech specialist Microsoft announced that it would acquire Activision Blizzard in January 2022. The all-cash purchase is set to cost the Xbox maker $68.7bn at a price of $95 per share.
On the announcement, the stock price jumped nearly 40% before falling slightly to $72-$80 a share for much of last year.
The share price hasn’t reached the valuation Microsoft plans to pay because of regulatory concerns.
Activision Blizzard is a giant video games publisher. The company is so big that no other independent companies come close to its output and impact on the console gaming market. Its biggest competitor Electronic Arts‘ market cap ($35.65bn) is around half of the proposed value that Activision Blizzard commands.
The purchase would instantly make Microsoft the third-largest gaming company in the world. However, Sony (the second-largest) has been fighting hard against the acquisition.
Regulators worldwide have reviewed the acquisition rigorously to see if it violates antitrust laws. But Microsoft claims that because it would only be the third-biggest player by revenue, that’s not a monopoly. However, regulators don’t necessarily agree.
Buffett’s bet
Warren Buffett’s big buys of Activision Blizzard shares show him putting his money where his mouth is. He believes the deal will pass regulatory scrutiny, so in his opinion, there’s potential for easy money to be made.
Currently, the share price is around $75. If the acquisition goes ahead, there’s a profit of around $20 per share to be had from buying now. Buffett stands to make north of $1bn if the deal goes through.
So should I follow him and invest some of my own money in Activision Blizzard shares? Well, I’d actually bought shares in the company a week before the acquisition news for $62.35 a share. I sold my position on the day of the announcement for $84.95 each. That’s a fast turnaround for me as I’m generally a long-term investor.
I had no prior inclination that the company would be acquired, but I was happy to take the quick profit.
Early last year, I was pretty confident the deal would go through, as was Warren Buffett. However, now I’m not so sure. Microsoft has been trying hard to convince regulators in Europe and the US that the deal is good for the industry. Yet, as mentioned, they don’t seem to agree.
The US Federal Trade Commission is attempting to block the acquisition, though Microsoft intends to fight that in court. In short, the deal is getting messy.
I think it’s still likely to go through and I’ve been mulling whether to buy some shares again since the price fell to around $72. However, I’m not quite as confident as Warren Buffett, and I think investing now, it would be a pure gamble. I’m glad I sold my shares on the announcement day. I think I’ll quit while I’m ahead on this one.