2022: Buffet is buying Activision as merger arbitrage trade.

WARREN BUFFETT: OK. Oh, I should make a little news here, so you’ve all come and you may or may not see this, but it’s very possible — one of the things we bought, one of the things I bought, was bought for a different purpose by a different manager months earlier.

They bought roughly 15 million shares of Activision. And I knew about the company, I would just see it at the monthly report. But then on January, I don’t know, 17th or 18th, something like that, Microsoft announced they were going to buy Activision for $95 a share.

Now, when they announced that, at that point Activision becomes a different kind of security. It becomes what Charlie and I used to call — well, and everybody did 50 years ago. We’d call them workouts or something like that. And they become known as arbitrage.

Well, they’re not really arbitrage, but they’re securities that are, in this case a common stock, whose value depends not on what the market price does, but whether a given corporate event occurs. An announced corporate event occurs. Well, Microsoft wants to buy Activision, we’ll say — well, they said at $95 a share.

And they’ve got the money, and obviously mergers, and big mergers, tech companies, all kinds of things, have got all kinds of problems with the world generally in terms of opinion. So you don’t know what the Justice Department will do or you don’t know what the EU will do and all kinds of things.

But at that point it becomes a different security. And Charlie and I, 50 years ago, we used to do a lot of that sort of thing. And Gus Levy did it at Goldman Sachs. And we even went back one time I think on British Columbia power, didn’t we, Charlie?

CHARLIE MUNGER: Yeah. We certainly did.

WARREN BUFFETT: Yeah. (Laughs) A guy named Bennett was up there, and we were trying to figure out some takeover of the power business. I mean we spent a lot of time analyzing the probabilities of announced deals going through, and we called them workouts. Now, the term became arb. And it hasn’t worked overall too well in recent years.

Now, every now and then I see something that I want do to in that field. But very seldom, because they’ve got to be big. The profit is limited. You know, if they say you’re going to get $95, you’re not going to get $96, and if the deal blows up, you may have a stock that’s at $40 or something.

But we did it with Monsanto five or six years ago when Bayer was buying it, and we got very lucky, because it turned out to be a terrible acquisition for Bayer, but it did go through, because Bayer had the money and they went through with the deal, even though Monsanto came with a problem that nobody really understands the extent of. And we did it with Red Hat when IBM bought it.

So in any event, on January whatever it was, 17th, 18th, 19th, Microsoft announces it. And the stock, which had been at $60 — let’s see. I may have a slide here, which I’ll find. But in any event, the stock, which had been in the 60s, went up to $81 or $82. And that looked like not a big enough spread to me for a few days. And then it settled back a little.

So anyway, we now own 9.5%, something like 9.5% of Activision. And if we went over 10% we would file a report. So in order that the news people don’t feel that there’s no news here, I can tell you that as of yesterday, we own about 9.5%. If we go past 10%, there’ll be a form filed with the SEC and so on.

But it is my purchases, not the manager who bought it some months ago. (SNAPPING) And if the deal goes through we make some money, and if the deal doesn’t go through, who knows what happens. But I just want to be sure that if we do file that report, people understand very clearly, because there’s been some very mixed up stories on that in the past.

We want to be very clear that it was Warren Buffett’s decision in that particular case, and he doesn’t know what the Justice Department’s going to do. (Laughs) He doesn’t know what the EU’s going to do. He’s never talked to anybody at Microsoft about it.

I think he’s just read a document. He’s made his own assessment. And it can change. And at one time I think we sold a few shares even when I thought it was a little higher than it should be. It turned out those sales were not a bad sale. And so I just want to create a little news for you.

And I want to, if possible, head off stories which have been incorrect in the past, and which get then picked up by other media and corrections never get written. That all the corrections were written by one inaccurate story. And they apologized even to me. Both are reporter and the editor sent me a personal note of apology. And they didn’t expect to make a mistake.

But when the other publications picked up the story, they didn’t bother to pick up the correction. And millions of people were misinformed, and probably — literally by the time it gets spread around. And this one I will attempt to head off by telling you exactly what the facts are (Laughs) right now.

And we’ll see whether we go beyond 10%. But, you know, it could easily be that if it went up a few dollars — it’s still a $95 deal. It’s still 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. So anyway, Charlie, do you have any news to break? (Laughs)

CHARLIE MUNGER: No.

WARREN BUFFETT: Yeah. (Laughter) And incidentally, I don’t talk this over with Charlie. I mean, you know, he knows that occasionally I’ll see an arbitrage deal and do it. And, you know, 50 years ago we were doing it together, and his general feeling is, “Why is Warren fooling around with this kind of stuff, even.”

But it’s the old fire horse that occasionally it looks like the odds are in our favor. But absolutely we can lose money on that company, and, you know, fairly large sums of money, depending on what happened if the deal blows up.

And there will be a lot of people that want the deal to blow up. But Microsoft doesn’t want it to blow up, so we’ll just have to see what happens.