Video game producer Take-Two Interactive (NASDAQ:TTWO) is acquiring mobile games maker Zynga Inc. (NASDAQ:ZNGA) in a transaction carrying an enterprise value of $12.7 billion.
The cash and equity deal values the “FarmVille” producer at $9.86 a share — a more than 64 percent premium to where the stock closed on Jan. 7.
Under the terms and subject to the conditions of the agreement, Zynga stockholders will receive $3.50 in cash and $6.36 in shares of Take-Two common stock for each share of Zynga common stock outstanding at the closing of the transaction,” according to a statement issued by both companies.
The acquisition is scheduled to close during Take-Two’s fiscal first quarter, which ends on June 30. The boards of both companies approved the takeover, but the agreement contains a 45-day “go-shop” provision. That permits Zynga to solicit a higher offer from another suitor up to Feb. 24.
For Take-Two, Zynga Buy Is About Scale
Take-Two, the publisher of the popular Grand Theft Auto franchise, among others, is bolstering its footprint in the fast-growing mobile games space with the acquisition of Zynga.
Data confirms mobile gaming is expanding at a rapid pace. With more than 2.7 billion gamers playing monthly and 10 million developers around the world, the industry is now larger than some traditional entertainment forms, including books, movies, and music, and mobile gaming is driving that growth.
Take-Two is forecasting $100 million in cost savings in two years after the purchase is finalized, and at least $500 million worth of “annual net bookings opportunities over time.” While the buyer currently has a solid portfolio of mobile games, the purchase of Zynga will elevate mobile to 50 percent of net bookings in fiscal 2023, up from 12 percent in fiscal 2022.
“Looking ahead, the combined company is expected to deliver a 14 percent compound annual growth rate for net bookings (excluding the annual net bookings opportunities and any future acquisitions) over the three-year period from Take-Two’s fiscal years 2021 through 2024,” according to the statement.
In addition to “FarmVille,” San Francisco-based Zynga also produces CSR Racing, Golf Rivals, Words with Friends and Zynga Poker, among others. Take-Two also publishes Borderlands, NBA2K — the iconic basketball video game — and the Red Dead Redemption series.
Not surprisingly, shares of Zynga are getting a massive boost on the takeover news. In midday trading, the stock is up 44.25 percent on volume that’s more than nine times the daily average, trading at its highest levels since last August.
That easily makes Zynga the best-performing name on what’s an otherwise dismal day for gaming equities.
Along those lines, residual benefits of the Take-Two/Zynga news aren’t yet accruing to other members of the mobile gaming space. That’s although some have previously been mentioned as potential takeover targets. Last year, Take-Two rival Electronic Arts (NASDAQ:EA) acquired Glu Mobile for $2.4 billion, signaling more mobile gaming deals could be on the way.
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