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Last year, Warren Buffett announced that he had bought 9.5% of Activision Blizzard (NASDAQ:ATVI) to Berkshire Hathaway. The Wall Street mogul bought large amounts of shares after Microsoft announced that it would acquire the gaming specialist.
Buffett has bet nearly $5 billion that the acquisition will go ahead. Should I do the same with the least amount of cash I have available?
microsoft monopoly
To the surprise of the entire video game industry, technology specialist Microsoft announced that it would acquire Activision Blizzard in January 2022. The all-cash purchase will cost the Xbox maker $68.7 billion at a price of $95 per share.
At the announcement, the share price rose nearly 40% before dipping slightly to $72-$80 a share for much of last year.
The share price has not reached the valuation that Microsoft plans to pay due to regulatory concerns.
Activision Blizzard is a giant video game publisher. The company is so large that no other independent company comes close to its production and impact on the console gaming market. Your biggest competitor electronic artsThe market capitalization ($35.65 billion) is about half the proposed value that Activision Blizzard commands.
The purchase would instantly make Microsoft the third largest gaming company in the world. Nevertheless, sony (the second largest) has been fighting hard against the acquisition.
Regulators around the world have rigorously reviewed the acquisition 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 do not necessarily agree.
Buffett’s gamble
Warren Buffett’s big purchases of Activision Blizzard stock show him putting his money where his mouth is. He believes the deal will pass regulatory scrutiny, so in his view there is potential for easy money to be made.
Currently, the share price is around $75. If the acquisition goes ahead, there is a profit of around $20 per share buying now. Buffett stands to earn more than $1 billion if the deal goes through.
So should I follow him and invest some of my own money in Activision Blizzard stock? Well, I 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 quick turnaround for me, as I’m generally a long-term investor.
He had no prior inclination for the company to be acquired, but was happy to take the quick win.
Early last year, he was pretty sure the deal would go through, as was Warren Buffett. However, now I’m not so sure. Microsoft has worked hard to convince regulators in Europe and the United States that the deal is good for the industry. However, as mentioned, they don’t seem to agree.
The US Federal Trade Commission is trying to block the acquisition, though Microsoft intends to fight that in court. In short, the deal is getting tough.
I think it’s still likely to take place and I’ve been considering whether to buy back some shares since the price fell to around $72. However, I’m not as confident as Warren Buffett, and I think investing now would be a gamble. pure. I’m glad I sold my shares on the day of the announcement. I think I’ll quit while I’m ahead of this case.
