MGM Investor Barry Diller Hits ‘Lucky Bet’ on Activision Options, Draws Federal Scrutiny

IAC/InterActiveCorp (NASDAQ:IAC) Chairman Barry Diller, whose company is the largest non-institutional shareholder in MGM Resorts International (NYSE:MGM), is in hot water with federal authorities. They are looking at him regarding a well-timed options bet on video game publisher Activision Blizzard (NASDAQ:ATVI).

IAC Chairman Barry Diller at the Wall Street Journal Digital Conference in 2017. His options bet on Activision is being investigated by federal regulators. (Image: Reuters)
IAC Chairman Barry Diller at the Wall Street Journal Digital Conference in 2017. His options bet on Activision is being investigated by federal regulators. (Image: Reuters)

The Wall Street Journal reports the US Department of Justice and Securities and Exchange Commission (SEC) are looking into whether or not options trades placed by Diller, his stepson Alexander von Furstenberg, and entertainment mogul David Geffen on the video game company could fall under the auspices of insider trading. The trio placed bullish options trades on Activision prior to Microsoft (NASDAQ:MSFT) announcing it’s acquiring the Call of Duty publisher for $68.7 billion.

The three men have an unrealized profit of about $60 million on the options trade, based on the recent Activision share price of around $80,” reports the Journal, citing unidentified sources with knowledge of the situation.

Diller acknowledges that he’s been contacted by regulators, and says the idea to purchase Activision options prior to the Microsoft deal announcement amounts to “a lucky bet.” Options are leveraged instruments and calls — the bullish contracts — typically surged on mergers and acquisitions news, producing rapid short-term gains for buyers that held the contracts prior to the news hitting the wires.

Investigating Diller, But Not Buffett

It’s possible Diller’s attorneys will have a field day with an interesting element of the Activision situation. Federal prosecutors are looking into the IAC boss’s trades and those of his aforementioned contacts, but aren’t doing the same with Warren Buffett.

A recent 13F filing with the SEC by Buffett’s Berkshire Hathaway indicates the billionaire’s conglomerate purchased 14.66 million shares of Activision stock in the fourth quarter. Microsoft announced its purchase of the video game giant in January, meaning Buffett’s company was long Activision before Microsoft announced the takeover.

The “Oracle of Omaha” said his primary deputies — Todd Combs and Ted Weschler — were responsible for building the stake in Activision.

Regulators haven’t said why Diller is being investigated and not Berkshire Hathaway, though it’s possible the reason boils down to options vs. common stock.

No Bearing on MGM Relationship

Diller’s IAC took a 12% stake, then valued at $1 billion, in MGM Resorts in August 2020. As a percentage of MGM shares outstanding, IAC is by far the casino operator’s largest shareholder. For now, it appears the options trading investigation will have no impact on IAC’s relationship with the gaming company.

IAC’s investment in MGM is seen as an endorsement of BetMGM and online gaming, with some analysts expecting the partnership to generate more buzz this year.

Last month, Diller’s company teamed with MGM to buy $405 million worth of the casino giant’s shares from Keith Meister’s Corvex Management. That effectively reduced the shares outstanding count in the process.

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