By Jonathan Stempel
(Reuters) - Activision Blizzard Inc (NASDAQ:ATVI) shares rose on Monday after Warren Buffett said his company Berkshire Hathaway (NYSE:BRKa) Inc had taken a 9.5% stake in the video game maker, which Microsoft Corp (NASDAQ:MSFT) has agreed to buy for $68.7 billion.
Buffett revealed the approximately $5.6 billion investment in Activision on Saturday at Berkshire's annual meeting in Omaha, Nebraska. He said he may increase the stake above 10%.
Activision shares were up $2.13, or 2.8%, at $77.73 in afternoon trading, after earlier rising to $78.22. They remain far below the $95 per share that Microsoft offered on Jan. 18.
The merger would combine Activision, whose franchises include "Call of Duty" and "Candy Crush," with Microsoft's Xbox, which makes gaming consoles and whose franchises include "Halo."
Buffett appears to believe Activision's share price is low because investors are overly pessimistic about whether U.S. and European Union regulators will approve the merger.
One of Buffett's portfolio managers had built a $1.1 billion stake in Activision late last year, but Buffett said the subsequent bet was his.
"We want to be very clear that it was Warren Buffett's decision, ... and he doesn't know what the Justice Department is going to do, he doesn't know what the EU is going to do," Buffett said. "One thing we do know is Microsoft has the money."
Microsoft and Activision did not immediately respond to requests for comment.
Berkshire has been on a spending spree, having bought $51.1 billion of stocks including Chevron Corp (NYSE:CVX) and Occidental Petroleum Corp (NYSE:OXY), and even adding to its huge stake in Apple Inc (NASDAQ:AAPL), in the first quarter.
The Activision investment could generate about $1 billion of profit for Berkshire, depending on what it paid.
Buffett said he "seldom" makes such investments, a form of arbitrage, because "they've got to be big" to make sense for his $712 billion company.
"When he's looking at investments, he always looking at odds, and they have to be distinctly in his favor or he won't be interested," said Paul Lountzis, president of Lountzis Asset Management LLC, a longtime Berkshire investor.
"Even though he's spent $51 billion on equities, it's a good way to deploy additional capital," he added.
Buffett said he made similar, smaller investments recently.
He bought Red Hat Inc (NYSE:RHT) shares after IBM (NYSE:IBM) Corp agreed in 2018 to buy the software company for $34.8 billion, and he bought Monsanto (NYSE:MON) Co shares after Bayer AG (ETR:BAYGN) agreed in 2016 to buy the maker of Roundup weed killer for $63 billion.
Berkshire "got very lucky because it turned out to be a terrible acquisition for Bayer (OTC:BAYRY)," Buffett said.