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Washington throws a wrench in Buffett's arbitrage play |
The Federal Trade Commission's effort to block Microsoft's planned $69 billion acquisition of Activision Blizzard is bad news for Berkshire Hathaway, which reported owning 60.1 million shares as of September 30. It's a 7.7% stake that is currently valued at around $4.5 billion.
At this year's shareholders meeting in May, Buffett revealed that he had bought roughly 50 million shares after Microsoft announced in mid-January that it had a deal to buy Activision for $95 per share.
(One or both of Berkshire's portfolio managers had purchased nearly 15 million shares last year, before the announcement. Buffett strongly denounced suggestions they knew a deal was in the works. Berkshire bought another four million shares in the second quarter and sold more than eight million shares in the third quarter.)
It was an explicit bet the deal would go through. Buffett said he bought the stock after it had "settled back a little" from trading around $81-$82 in the weeks following the unveiling of the deal. |
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Activision shares were, and still are, trading at a discount to the deal price because even then there were concerns antitrust regulators would try to block it.
Buffett said at the meeting, "If the deal goes through, we make some money. And if the deal doesn't go through, who knows what happens?" (What happens is that the stock falls sharply, possibly to the mid-$60s, where it was before the deal.)
But Buffett thought it was a bet worth making. "We don't know what the Justice Department will do. We don't know what the EU will do. We don't know what 30 other jurisdictions will do. One thing we do know is Microsoft has the money, so that takes that one risk out of it."
The bet could still work out, as there are no guarantees the FTC will win its court fight to stop the deal. |
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Embarrassing correction |
In last week's item on Buffett donating lots of Berkshire stock without giving up control of the company, I incorrected wrote that the Class B shares were created in 1996 to facilitate Berkshire's acquisition of Burlington Northern Santa Fe.
One part of that is right. They were created in 1996. The part about BNSF is wrong.
In 2010, the B shares were split 50-for-1 to facilitate Berkshire's purchase of the railroad. (Buffett explains why in this clip from the archive.)
In his 1996 letter to shareholders, Buffett wrote that the new lower-priced B shares were issued to forestall "the threatened creation of unit trusts that would have marketed themselves as Berkshire look-alikes [to people who couldn't afford to buy a high-priced A share.] In the process, they would have used our past, and definitely nonrepeatable, record to entice naive small investors and would have charged these innocents high fees and commissions."
You can hear more from him about the decision in this clip from the 1996 annual meeting.
Thank you to the alert readers who flagged my error. |
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