Berkshire owns 9.5% of Activision Blizzard shares in merger arbitrage bet

Warren Buffett on Saturday said Berkshire Hathaway has been increasing its stake in Activision Blizzard in a merger arbitrage play, betting that Microsoft’s proposed acquisition of the video game company will close.

Berkshire now owns about 9.5% of Activision shares, Buffett said at the company’s annual shareholder meeting.

“Occasionally I’ll see an arbitrage deal and do it,” Berkshire’s chairman and CEO said. “Occasionally it looks like the odds are in our favor, but absolutely we can lose money on that company, fairly large sums of money, depending on what happened if the deal blows up.”

In January, Microsoft announced intentions to buy Activision for $95 per share. Activision closed at $75.60 per share on Friday.

Buffett said he has been buying more shares of Activision since the deal was announced as the stock is trading way below Microsoft’s offer. Buying at these levels will yield a bigger return if the deal closes.

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

“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 that Microsoft has the money,” he said.

In the fourth quarter of 2021, Berkshire first purchased about $1 billion worth of Activision Blizzard stock, in a bet the company was undervalued.

Buffett has said Berkshire “had no prior knowledge” of Microsoft’s plan to buy the company when Berkshire made its initial investment.

Check out all of the CNBC Berkshire Hathaway annual meeting coverage here.

Amazon workers won’t get paid for Covid leave anymore

A worker sorts out parcels in the outbound dock at Amazon fulfillment center in Eastvale, California on Tuesday, Aug. 31, 2021.

Watchara Phomicinda | MediaNews Group | The Riverside Press-Enterprise via Getty Images

Amazon is cutting paid time off for front-line U.S. workers who test positive for Covid-19, effective Monday.

All U.S.-based Amazon workers who test positive for Covid-19 will now get up to five days of excused, unpaid leave, the company told workers in a notice sent Saturday. A spokesperson told CNBC workers are still able to use their sick time off if needed.

In Saturday’s notice, Amazon added that workers waiting for Covid test results will no longer have time off excused since rapid tests are now widely available.

The e-commerce giant has slowly pulled back its Covid policies as vaccines have become more widely available and the Centers for Disease Control and Prevention changed its guidance. The company initially offered up to two weeks of paid time off for any employees diagnosed with Covid-19 or placed into quarantine. In January, the company reduced paid leave time to one week, or up to 40 hours.

As part of the pullback, Amazon will stop sending site-wide notifications of positive cases in its facilities, unless required by law. The company will also end incentivizing vaccination efforts, it said.

“The sustained easing of the pandemic, ongoing availability of COVID-19 vaccines and treatments, and updated guidance from public health authorities, all signal we can continue to safely adjust to our pre-COVID policies,” the company said in the notice.

The decision will likely spark a backlash from pro-union workers who are arguing for better working conditions and improved benefits at its warehouses. The move comes a day after an Amazon warehouse on New York’s Staten Island closed its union drive. The National Labor Relations Board will begin counting ballots on May 2.

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Warren Buffett gives his most expansive explanation for why he doesn’t believe in Bitcoin

Warren Buffett and Charlie Munger press conference at the Berkshire Hathaway Annual Shareholders Meeting, April 30, 2022.

CNBC

Bitcoin has steadily been gaining acceptance from the traditional finance and investment world in recent years but Warren Buffett is sticking to his skeptical stance on bitcoin.

He said at the Berkshire Hathaway Annual Shareholder meeting Saturday that it’s not a productive asset and it doesn’t produce anything tangible. Despite a shift in public perception about the cryptocurrency, Buffett still wouldn’t buy it.

“Whether it goes up or down in the next year, or five or 10 years, I don’t know. But the one thing I’m pretty sure of is that it doesn’t produce anything,” Buffett said. “It’s got a magic to it and people have attached magics to lots of things.”

Even bitcoin enthusiasts tend to regard the cryptocurrency as a passive asset that investors buy and hold and hope to see increase in price over a long period. Buffet himself commented that there’s “nobody” that’s short on bitcoin, everyone is a long-term holder. Other coins in the crypto market have been created and known to be more productive assets, mainly decentralized finance assets, but they’re still young, highly speculative and haven’t broken into the mainstream like bitcoin.

Buffett elaborated why he doesn’t see value in bitcoin, comparing it to things that generate other types of value.

“If you said… for a 1% interest in all the farmland in the United States, pay our group $25 billion, I’ll write you a check this afternoon,” Buffett said. “[For] $25 billion I now own 1% of the farmland. [If] you offer me 1% of all the apartment houses in the country and you want another $25 billion, I’ll write you a check, it’s very simple. Now if you told me you own all of the bitcoin in the world and you offered it to me for $25 I wouldn’t take it because what would I do with it? I’d have to sell it back to you one way or another. It isn’t going to do anything. The apartments are going to produce rent and the farms are going to produce food.”

Bill Murray reflects on inappropriate behavior that led to the shutdown of his latest film

Bill Murray is still reflecting on his inappropriate behavior, which led to a production shutdown on the Searchlight Pictures’ film “Being Mortal” last week.

On Saturday, the actor told CNBC that he had a “difference of opinion” with a woman he was working with on the film, saying, “I did something I thought was funny and it wasn’t taken that way.”

Murray said he has spent the last week thinking about the incident. He did not elaborate on what was said or to whom.

“As of now we are talking and we are trying to make peace with each other,” Murray said during a special interview during Berkshire Hathaway’s earnings event. “We are both professionals, we like each others’ work, we like each other I think and if we can’t really get along and trust each other there’s no point in going further working together or making the movie as well. It’s been quite an education for me.”

“Being Mortal” is based on Atul Gawande’s nonfiction book “Being Mortal: Medicine and What Matters in the End” and stars Murray alongside Aziz Ansari and Seth Rogan. The film was about halfway completed before production was halted. It is slated for release in 2023, but it is unclear if Murray will continue on with the project.

He said he was optimistic that “we are going to make peace” and that production will restart, but noted that he’ll only do so if the woman involved in the incident is comfortable doing so.

“I think it’s a sad dog that can’t learn anymore,” Murray said of learning from his mistakes. “That’s a really sad puppy that can’t learn anymore. I don’t want to be that sad dog and I have no intention of it.”

“What would make me the happiest would be to put my boots on and for both of us to go back into work and be able to trust each other and work at the work that we’ve both spent a lot of time developing the skill of,” he said.

Charlie Munger says Robinhood is justly ‘unraveling’ for ‘disgusting’ practices

Berkshire Hathaway Vice Chairman Charlie Munger blasted stock trading app Robinhood on Saturday, saying the company is now “unraveling.”

“It’s so easy to overdo a good idea. … Look what happened to Robinhood from its peak to its trough. Wasn’t that pretty obvious that something like that was going to happen?” Munger said at Berkshire Hathaway’s annual shareholder meeting Saturday.

Munger lambasted what he characterized as Robinhood’s “short-term gambling and big commissions and hidden kickbacks and so on.”

Robinhood does not charge users commission and generates a majority of its revenue from “payment for order flow,” the back-end payment brokerages receive for directing clients’ trades to market makers. 

“It was disgusting,” Munger said. “Now it’s unraveling. God is getting just.”

Charlie Munger at the Berkshire Hathaway press conference, April 30, 2022.

CNBC

Warren Buffett rips Wall Street for turning the stock market into ‘a gambling parlor’

Berkshire Hathaway CEO Warren Buffett lambasted Wall Street for encouraging speculative behavior in the stock market, effectively turning it into a “gambling parlor.”

Buffett, 91, spoke at length during his annual shareholder meeting Saturday about one of his favorite targets for criticism: investment banks and brokerages.

“Wall Street makes money, one way or another, catching the crumbs that fall off the table of capitalism,” Buffett said. “They don’t make money unless people do things, and they get a piece of them. They make a lot more money when people are gambling than when they are investing.”

Buffett bemoaned that large American companies have “became poker chips” for market speculation. He cited soaring use of call options, saying that brokers make more money from these bets than simple investing.

Still, the situation can result in market dislocations that give Berkshire Hathaway an opportunity, he said. Buffett said that Berkshire spent an incredible $41 billion on stocks in the first quarter, unleashing his company’s cash hoard after an extended lull. Some $7 billion of that went to snap up shares of Occidental, bringing up his stake to more than 14% of the oil producer’s shares.

“That’s why markets do crazy things, and occasionally Berkshire gets a chance to do something,” Buffett said.

“It’s almost a mania of speculation,” Charlie Munger, 98, Buffett’s long-time partner and Berkshire Hathaway vice chairman, chimed in.

“We have people who know nothing about stocks being advised by stock brokers who know even less,” Munger said. “It’s an incredible, crazy situation. I don’t think any wise country would want this outcome. Why would you want your country’s stock to trade on a casino?”

Retail traders flooded into the stock market during the pandemic, boosting share prices to records. Last year, the frenzy was fueled further by meme-inspired trading from Reddit message boards. But the stock market has turned this year, putting many of those new at-home traders in the red. The Nasdaq Composite, which holds many of the favorite names of small traders, is in a bear market, down more than 23% from its high after an April crush.

Warren Buffett has a long history of deriding investment bankers and their institutions –saying that they encourage mergers and spinoffs to reap fees, rather than improve companies.

He typically shuns investment bankers for his acquisitions, calling them pricey “money shufflers.” Buffett’s $848.02 per share offer for insurer Alleghany reportedly excludes Goldman’s advisory fee.

Earlier in the session, he noted that Berkshire would always be cash-rich, and in times of need, would be “better than the banks” at extending credit lines to companies. An audience member made an inaudible comment while he was talking.

“Was that a banker screaming?” Buffett joked.

(Follow along to live updates and a live feed of the annual meeting here.)

Warren Buffett significantly increases Chevron bet, now in Berkshire’s top 4 positions

Berkshire Hathaway added to its Chevron bet significantly during the first quarter, making the energy stock the conglomerate’s fourth biggest equity holding.

The “Oracle of Omaha’s” Chevron investment was worth $25.9 billion at the end of March, the company’s first-quarter filing Saturday showed, a big jump from its value of $4.5 billion at the end of 2021.

Shares of Chevron have rallied more than 30% this year on the back of surging oil prices, but Berkshire’s position has increased fivefold reflecting Buffett’s buying.

Energy has been a standout winner this year with the S&P 500 energy sector up 35% compared to the broader benchmark’s 13% loss year to date.

Many oil and gas companies are also good income generators, offering attractive dividends. The energy sector yields 4.7%, compared to S&P 500′s 1.5% dividend yield. Chevron pays a 3.6% dividend.

Buffett first bought Chevron in the third quarter of 2020.

Warren Buffett and Becky Quick at the Berkshire Hathaway Annual Shareholder Meeting in Omaha, Nebraska, April 29, 2022.

David A. Grogan | CNBC

Chevron is not the only energy stock Buffett likes. Last month, the investor bought $7 billion worth of Occidental Petroleum’s common shares in additional investments.

“Together with the $10 billion in OXY preferred, Berkshire’s bet on the oil sector is now over $40 billion,” said James Shanahan, a Berkshire analyst at Edward Jones.

Berkshire’s biggest holding was still Apple, worth $159 billion at the end of the first quarter. Bank of America and American Express were the two other big holdings, worth $42.6 billion and $28.4 billion, respectively.

The significant Chevron bet might indicate that Berkshire will not acquire Occidental despite the recent jump in the ownership.

“It says that energy is the most attractive place in the market to Warren and that he won’t take OXY private,” said Cole Smead, president and a portfolio manager at Smead Capital Management.

Check out all of the CNBC Berkshire Hathaway annual meeting coverage here.

Inclusive Capital spots multiple opportunities for upside with an active ESG focus at Verra

Thomas Winz | The Image Bank | Getty Images

Company: Verra Mobility (VRRM)

Activist: Inclusive Capital Partners

What’s Happening?

Behind the Scenes

Verra Mobility operates through two segments: (i) Commercial Services (“CS”) and (ii) Government Solutions (“GS”). The CS business turned what was a major headache and large administrative cost for the rental car companies into an ancillary revenue stream at 100% margin. The company takes a cut of the daily service fee and a piece of the toll. The company has relationships with tolling authorities across the entire country, processes 250 million transactions per year and is really the only national provider of toll management across the country. The GS business is revenue generating for local governments and helps them increase their road safety mandates and identify problem zones.

The CS segment comprises approximately 60% of the company’s revenue and has 63% EBITDA margins at the segment level and the GS segment comprises approximately 40% of the company’s revenue with 40% EBITDA margins at the segment level. Both businesses are No. 1 in market share with the CS business covering 95% of U.S. toll roads and the GS business having 70% of U.S. market share. This results in a very high margin business with maintenance capex of only 6% of revenue and an approximate 50% return on invested capital.

Despite all of this, the company is undervalued because investors are not giving it credit for recovery from Covid, even though the CS segment is at 98% of 2019 revenue and the GS segment has exceeded 2019 revenue. Moreover, from 2015 through 2019, it grew EBITDA at 19% per year and is expected to grow EBITDA more than 25% per year in 2021 and 2022. This will result in internally generated cash flow of $500 million that can be used strategically or for stock buybacks representing approximately 20% of its present market cap.

Additionally, there could be future upside from three areas. First, the company could have a huge opportunity replicating what they currently have in the U.S. in Europe. Europe has even more tolls. If the company could find a way to manage the tolls for the European arms of the U.S. rental car agencies, there could be a $300 million to $350 million market opportunity, compared to $230 million in revenue generated from CS in the US in 2019. Second, there are attractive opportunities for strategic M&A. The company’s management has shown they can be disciplined with acquisitions. The most recent acquisition, Redflex, is in the process of being fully integrated. Third, there are capital allocation opportunities with the company already announcing a $100 million stock repurchase plan.

As is customary with Inclusive investments, there is also a very strong ESG component to this business. Within CS, the company allows for more diversity in infrastructure funding. Most infrastructure costs are currently financed by gas taxes. However, with cars becoming more fuel efficient and the rise of electric vehicles, gas spending is in a secular decline, which is good for the environment. An increase in the amount of tolls collected will make up for this decline benefiting the environment while increasing VRRM’s CS revenue.

In the GS segment, the ESG benefits are much clearer. Motor vehicle traffic accidents are the third leading cause of death in the U.S. in individuals ages 1-44, after drug overdoses and suicides. As of 2019, motor vehicle accidents accounted for 36,000 deaths in the U.S. and speeding and intersection-related accidents accounted for 55% of those fatalities. The GS business directly targets that problem. The Insurance Institute for Highway Safety found that red-light cameras reduced traffic fatalities by 21% in the U.S. and speed cameras reduced traffic fatalities by as much as 39%. The higher penetration that the GS business gets, the more profitable the business becomes for sure, but just as clear, the more lives are saved on U.S. roads each year.

Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and he is the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments. Squire is also the creator of the AESG™ investment category, an activist investment style focused on improving ESG practices of portfolio companies.

Lyft will cover legal fees for drivers sued under Oklahoma abortion law

Lyft President John Zimmer (R) and CEO Logan Green speak as Lyft lists on the Nasdaq at an IPO event in Los Angeles March 29, 2019.

Mike Blake | Reuters

Lyft said Friday it will fully cover legal fees for its drivers who are sued under Oklahoma’s anticipated restrictive abortion law.

The Oklahoma House on Thursday passed the Texas-style ban that prohibits most abortions after about six weeks of pregnancy, a time period before many women have even discovered they’re pregnant. The so-called Oklahoma Heartbeat Act now goes to Republican Gov. Kevin Stitt, who is expected to sign it within days.

Like the Texas law, people aiding the procedure, including doctors, people paying for the procedure and clinic workers are at risk. That includes rideshare drivers who can be punished for transporting women to clinics to receive abortions, where they could be fined up to $10,000. Abortion rights activists and providers argue these laws effectively overturn protections set under Roe v. Wade in 1973.

“Women’s access to health care is under attack again, this time in Oklahoma,” Lyft CEO Logan Green said in a tweeted statement. “Lyft drivers are once again caught in the middle just for getting people where they need to go. We believe transportation shouldn’t be a barrier to accessing health care and it’s our duty to support both our rider and driver communities.”

Lyft first announced protections for drivers in Texas after its restrictive abortion law took effect in September. Now, the rideshare company is extending that help to drivers in Oklahoma.

Lyft will cover 100% of legal fees for drivers in the two states who are sued under SB1503 or SB8 while driving on the platform.

For women in Oklahoma and Texas who seek out-of-state abortion care, the company is working with health provider partners to create a “safe state” program that would cover the costs of transportation to airports and clinics.

Lyft will also cover travel costs for its employees enrolled in U.S. medical benefits, which include coverage for elective abortion, if the laws require travel outside of Texas or Oklahoma to find care.

“This law is incompatible with people’s basic rights to privacy, our community guidelines, the spirit of rideshare, and our values as a company,” Lyft said in a blog post.

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How to trade options contracts and use the bull call spread

Experienced Wall Street players are always looking for new strategies to protect their assets.

One of those strategies is called options trading. An options contract is a financial tool that allows an investor to pay a fixed sum of money to lock in a set price to either buy or sell an asset at a future date.

“It’s best to think of options as an insurance product for stocks,” said Chris Murphy, co-head of derivative strategy at Susquehanna Financial Group.

But options can be a risky strategy for new investors without proper knowledge. Frequently, new investors do not engage the same strategies when trading options that seasoned investors do.

Watch the video above to learn more about options contracts and what the pros do differently to increase their chances of profit.

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