Regulators probe Diller and Geffen’s lucrative Activision bet
Billionaires Barry Diller and David Geffen made great fortunes uncovering talent in Hollywood, music and technology.
Now, their side hustle of sniffing out unannounced corporate takeovers has caught the eye of the Securities and Exchange Commission and Department of Justice.
The duo purchased $108mn of options contracts tied to video game developer Activision on January 14 for about $40 per share, alongside Alexander von Furstenberg, Diller’s stepson from his marriage to Diane von Furstenberg.
Three days later, Microsoft announced a $75bn takeover of Activision for $95 a share, propelling the trio’s options to achieve paper gains of roughly $60mn.
The trades are so good that they’ve become the subject of an insider trading investigation by US regulators, DD’s James Fontanella-Khan and Antoine Gara and the FT’s Stefania Palma report.
Barry Diller: ‘We acted simply on the belief that Activision was undervalued and therefore had the potential for going private or being acquired’ © Bloomberg
JPMorgan Chase, the bank that the trio used to place their bet, reported them to US authorities after the takeover was announced. JPMorgan declined to comment.
Diller told the FT that the trade is clean and was made on the basis of their belief that Activision was undervalued and could eventually be acquired or taken private.
“None of us had any knowledge from any person or any source or anything about a potential acquisition of Activision by Microsoft,” he said.
The three men purchased in-the-money options contracts versus out-of-money contracts that would have been far more profitable, Andrew Verstein, a professor of law at UCLA, told DD.
But they placed a leveraged bet on Activision, which gave them more upside potential than simply buying the stock, as Warren Buffett’s Berkshire Hathaway did in the lead up to the deal.
David Geffen’s superyacht Rising Sun © Shutterstock
“It is suspicious when a person buys an aggressive derivatives-based bet in an unannounced merger,” said Verstein. “Most rich people don’t do that.”
Diller told the FT that his lawyers have preserved all documents of their trade “because we were sure somebody would say, ‘well, how could this be such a coincidence?’ It turns out, that’s all it is.”
Diller is a friend of Activision’s chief executive Bobby Kotick and is the founder of media group IAC, which has backed various internet media brands including Tinder and Expedia.
If Diller’s version of events prevails, he and Geffen have pulled off one of the great trades of 2022.