By Emily Bary
Company expects that Zynga could help it translate titles to mobile formats
Take-Two Interactive Inc. plans to acquire Zynga Inc. in a $12.7 billion deal that will give the videogame publisher greater exposure to the mobile-gaming business.
The deal for Zynga (ZNGA) will include a mix of cash and stock, Take-Two (TTWO) said in a Monday morning press release. The company intends to pay $3.50 in cash and $6.36 in Take-Two shares for each share of Zynga.
Zynga's stock was up 47% in Monday morning trading. Take-Two shares were off more than 14% and on track for their largest single-day percentage decline since Dec. 4, 2009, when they dropped 29.12%, according to Dow Jones Market Data.
Shares of Israeli mobile-gaming company Playtika Holding Corp. (PLTK) were up more than 6% Monday. Shares of Electronic Arts Inc. (EA) were off 1.3%, and shares of Activision Blizzard Inc. (ATVI) were off 1.1%.
Take-Two said in its press release that the merger will make it one of the largest mobile-gaming publishers, and it called out mobile games as "the fastest-growing segment of the interactive entertainment industry."
Mobile gaming has represented "about 10% of our business and growing," Take-Two Chief Financial Officer Lainie Goldstein said on a conference call following the deal announcement. The company anticipates that mobile games will account for roughly half of the business in fiscal 2023.
Zynga publishes games such as FarmVille and Empires & Puzzles, while Take-Two is known for powerhouse titles including Grand Theft Auto and Red Dead Redemption.
Take-Two expects to see about $100 million of annual cost synergies in the first two years after the deal closes. It also sees the potential for "more than $500 million of annual net bookings opportunities over time," per its press release.
In particular, Take-Two expects that Zynga could help it translate its titles to mobile formats.
"We believe we have the best collection of console and PC intellectual property in the interactive entertainment business, and it's basically nearly entirely unexploited for mobile and free-to-play around the world," Take-Two Chief Executive Strauss Zelnick said on the conference call. "Zynga's best-in-class studios can help us develop that property."
Take-Two further noted in its press release that through "sharing best practices and key data insights," it expects "to benefit from significant development and publishing synergies, unlock new revenue streams and reach new audiences around the world."
Zynga also brings advertising-monetization tools that Take-Two expects will benefit the combined business.
Take-Two anticipates that the deal will close in the first quarter of its 2023 fiscal year, which ends in June 2022. The agreement includes a go-shop provision, meaning that Zynga can solicit and evaluate other deal proposals in a 45-day window.
Despite the negative share reaction for Take-Two, the deal won praise from at least one analyst.
"We see this as a positive outcome for Zynga shareholders that should accelerate the vision for more cross-platform opportunities augmented by Take-Two's expertise, and from the Take-Two side we see this as a smart strategic move to meaningfully increase mobile exposure and accelerate their position to operate against the largest and fastest-growing segment of gaming," wrote KeyBanc Capital Market's analyst Tyler Parker.
Jefferies analyst Ken Rumph saw the deal as potentially helpful for sentiment toward Ubisoft , a French videogame company.
Ubisoft "suffers from almost complete investor skepticism over its ability to translate its PC/Console [intellectual property] to mobile/[free-to-play]," he wrote. "Ideas that another strong mobile/FTP player (Tencent, EA?) will target UBI's IPs may follow, along with a higher general M&A temperature (particularly if a ZNGA auction breaks out)."
Shares of Ubisoft were up 4% Monday.
(END) Dow Jones Newswires
01-10-22 1059ETCopyright (c) 2022 Dow Jones & Company, Inc.