Berkshire Hathaway cuts Activision stake as Microsoft deal flounders

Warren Buffett’s Berkshire Hathaway trimmed its bet on Activision Blizzard in late 2022, as the video game maker’s agreed takeover by Microsoft came under regulatory scrutiny.

Berkshire sold 7.4mn shares, or 12 per cent of its position, in Activision in the fourth quarter. The sales by the sprawling industrials-to-insurance conglomerate reduced its stake by roughly $435mn to $4bn, filings with the US Securities and Exchange Commission showed on Tuesday.

Buffett last year bet big on Activision, buying millions of shares of the company behind the Call of Duty and World of Warcraft game franchises. The purchase was unlike most of the investments in Berkshire’s $306bn stock portfolio, with the billionaire investor hoping to profit off the steep discount at which the stock was trading compared with the $95 share price Microsoft offered to pay for Activision in January 2022.

Buffett had hoped the gap would narrow — a ploy often deployed by merger arbitrage hedge funds betting on a deal ultimately closing at the price initially struck — but it has widened instead.

“Every now and then I see something that I want to do in that field [merger arbitrage], but very seldom because they’ve got to be big,” Buffett told investors at Berkshire’s annual meeting last year. “The profit is limited. 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.”

Microsoft’s takeover, set to be its largest ever, has faced regulatory pushback. This month the UK competition watchdog said the acquisition would hurt UK gamers, jeopardising the deal. That came shortly after the US Federal Trade Commission sued to block the transaction, arguing it would harm competition.

Shares of Activision closed roughly 19 per cent below the takeover price on Tuesday at $76.78.

Berkshire took an initial $1bn stake in Activision in 2021, before Microsoft announced its takeover. Buffett said the purchases were directed by either Todd Combs or Ted Weschler, his two investment lieutenants, at a cost of about $77 a share. But his view that Microsoft’s takeover would be successful drove him to increase the bet.

“If the deal goes through we make some money, and if the deal doesn’t go through who knows what happens,” Buffett said at the annual meeting.

Activision was not the only investment Berkshire pared back in the quarter. The Omaha, Nebraska-based company sold more than 85 per cent of its stake in chipmaker Taiwan Semiconductor Manufacturing, a position it had taken just months earlier when it purchased shares worth $4.1bn.

Berkshire cut its position in TSMC by more than 50mn shares, disclosing it held 8.3mn shares worth $618mn. The rapid shift is somewhat unusual for Berkshire, which tends to think of its investments in years or decades as opposed to months.

The company also dumped its position in regional bank US Bancorp and more than halved its stake in Bank of New York Mellon.

Berkshire made modest additions in the quarter, buying 1.2mn shares of Louisiana-Pacific, a maker of construction supplies, and 2.4mn shares of MTV owner Paramount Global.