Longtime friends Warren Buffett and Bill Gates are buddies and share many hobbies. And it seems like one of those hobbies is making money on S&P 500 stocks.
Buffett's massive stake in video-game publisher Activision Blizzard gained a head-turning $409.9 million in value in just one day on Tuesday, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. A lucky turn of events sparked the windfall for Buffett's Berkshire Hathaway due to a rare collision of Buffett's and Gates' financial interests.
A federal judge gave Microsoft, the company Gates founded, the OK to buy Activision Blizzard — thwarting regulators' plans to stop the takeover. Shares immediately jumped 10% Tuesday to 90.99 a share. Microsoft in January 2022 offered to buy Activision Blizzard for $95 per share in an all-cash transaction valued at $68.7 billion.
But it looks like a done deal now. "The judge denied the FTC's request for a temporary injunction that would stop Microsoft from closing the acquisition," said a note by Wedbush analysts Michael Pachter and Nick McKay. "With the injunction denied, Microsoft has a green light to close the deal before July 18."
It's the kind of fast-money move on a tech stock Buffett isn't usually known for.
Berkshire Hathaway's Giant Stake In Activision
Buffett usually loves the products his company makes – think Coca-Cola and See's Candy. It's highly unlikely, though, that Buffett plays any of Activision Blizzard's games — he and Gates play bridge and chess. But playing this video-game maker's stock has been highly profitable.
Berkshire Hathaway still owns 49.4 million shares of Activision Blizzard, the "Call Of Duty" publisher. That makes him the No. 3 largest holder, with 6.3% of the company. Only ETF giants Vanguard and BlackRock own more shares, but barely.
Berkshire Hathaway's timing on the stock has been outstanding, too. Berkshire first bought 14.7 million shares of Activision Blizzard in the quarter ended in December 2021, just prior to Microsoft announcing plans to buy the company in January 2022. The average cost was about $77 a share, said Buffett in a letter on Berkshire's site.
And Berkshire Hathaway then added another nearly 50 million shares in the quarter the deal was announced, which ended in March 2022. Shares didn't move much as the deal was in limbo and regulators threatened to halt it — serving as a great place to hide during 2022's S&P 500 bear market.
Buffett lightened up a bit on Activison Blizzard stock, by 8.3 million shares, in the quarter ended in September 2022. But he's surely glad he kept so many shares. The windfall on Tuesday in itself was well worth it.
A No-Lose Deal For Buffett
Following the federal judge's ruling, Buffett is in a win-win situation. He can hold his shares until the July 18 deadline and enjoy the time value of money and a 0.6% annual dividend. But even if the deal gets scuttled — which is highly unlikely — Activision Blizzard investors "would likely receive a reverse-termination fee of $3 billion before taxes," said Baird analyst Colin Sebastian in a report.
That's not to say there's anything untoward with Buffett's outstanding timing. Gates still owns 39 million shares of Microsoft via the Bill & Melinda Gates Foundation, or 0.5%, but isn't on the company's leadership team or board.
And Buffett has publicly defended his stake in Activision Blizzard. On Berkshire Hathaway's website, Buffett explains in a letter that the purchases "were made by one of the two investment managers who operate independently of me at Berkshire."
"In any event, the investment manager's $77 per share purchase could have been replicated after the Microsoft proposal was announced at a price of $78 or so," Buffett wrote. "His purchase was no bonanza of any sort for him or Berkshire."
Maybe so. But the trade is looking awfully good now with Activision Blizzard shares up more than 18% from then.
And the next question is whether Buffett will look for, and find, other companies ripe for acquisition by tech giants. If so, it's going to be tough to outdo himself on the Activision deal.
Biggest Activision Blizzard Shareholders
| Holder | Shares held (millions) | % of shares outstanding |
|---|---|---|
| Vanguard Group | 58.0 | 7.3% |
| BlackRock | 57.6 | 7.3 |
| Berkshire Hathaway | 49.4 | 6.2 |
| Public Investment Fund of the Kingdom of Saudi Arabia | 37.9 | 4.8 |
| State Street Global Advisors | 30.3 | 3.8 |
| FMR LLC | 22.6 | 2.8 |
| Geode Capital Management | 15.4 | 1.9 |
| Pentwater Capital Management | 15.4 | 1.9 |
| Flossbach & Von Storch Vermoegensmanagement | 10.4 | 1.3 |
| Aristotle Capital Management | 10.3 | 1.3 |
Sources: S&P Global Market Intelligence, IBD, positions as of March 31, 2023
Follow Matt Krantz on Twitter @mattkrantz
