ZNGA - Is Zynga Warren Buffett's Next Merger Arbitrage Play?
Recently, chairman and CEO Warren Buffett of Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) , a $705 billion holding company that owns a diversified portfolio of businesses and stocks, announced a merger arbitrage play with Activision Blizzard (NASDAQ: ATVI) , a video game publisher. Merger arbitrage is a short-term investing strategy of buying stocks of companies trading below their acquisition price. And despite being known as a long-term investor, Buffett has participated in merger arbitrages for more than 30 years.
Activision Blizzard is not the only merger arbitrage available in the public markets right now. Staying in the video game space, Take-Two Interactive Software (NASDAQ: TTWO) , a video game holding company, plans to acquire mobile and social networking video game developer Zynga (NASDAQ: ZNGA) during the first quarter of Take-Two's fiscal year 2023, ending June 30, 2022. And while there appears to be a juicy merger arbitrage play on the surface, there's more than meets the eye.
When Take-Two announced the acquisition in early January, the video game company planned on paying a total value of $9.86 per share of Zynga -- $3.50 cash and $6.36 in shares of Take-Two common stock, valuing Zynga's enterprise value at $12.7 billion. With Zynga recently traded at $8.32 per share at close on Thursday, the "spread," or the percentage between the stock's trading price and buyout price, would be 16%.
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Is Zynga Warren Buffett's Next Merger Arbitrage Play?