Take-Two Interactive Acquires FarmVille Creator Zynga for $12.7 Billion

Take-Two Interactive said it is buying mobile games company Zynga for $12.7 billion with a mix of cash and stock, marking the latest blockbuster acquisition in a series of major gaming industry deals. video game.

The company announced on Monday that it would acquire all of Zynga’s outstanding shares at $9.86 each, a 64% premium to Zynga’s closing price on Friday. Zynga’s stock soared to close up 40% on Monday, while Take-Two closed down 13%.

Take-Two said Zynga shareholders will receive $3.50 in cash and $6.36 in Take-Two stock for each Zynga share outstanding upon closing of the transaction. The transaction, which is subject to regulatory and shareholder approvals, is expected to close by June 30, 2022.

“We’re trying to build a business over a very long period of time,” Take-Two CEO Strauss Zelnick told CNBC’s “Squawk on the Street” on Monday. “We have been careful to create value for our players, for our colleagues and for our shareholders, and this has been done over a very long period.

Signage at Zynga’s corporate headquarters in San Francisco, California, U.S., on Wednesday, August 4, 2021. Zynga Inc. is expected to release earnings numbers on August 5.

David Paul Morris | Bloomberg | Getty Images

Take-Two said the deal gives Zynga an implied enterprise value of $12.7 billion. On an equity basis, Zynga’s market value would be closer to $11 billion, according to CNBC’s calculations. The value may be subject to change based on fluctuations in the Take-Two stock price.

Take-Two said part of the deal would be funded by $2.7 billion in funding from JPMorgan. The rest will come from cash on its balance sheet and proceeds from issuing new debt.

Best known for its FarmVille series, Zynga first thrived on Facebook, at one point becoming the platform’s most successful app developer. In the years since, Zynga has focused on mobile, hoping to capitalize on explosive growth in the smartphone age.

While the company was seen as a key beneficiary of stay-at-home trends caused by Covid-19, its share price has fallen nearly 38% in the past year, with some investors wondering if the gambling boom pandemic has long-term legs. term.

Michael Pachter, managing director of equity research at Wedbush Securities, said the acquisition was a “solid decision”. He has a $15 price target on Zynga stock, well above Take-Two’s offer.

“Take-Two should see an acceleration in its mobile business, including taking existing brands and turning them into mobile franchises,” Pachter told CNBC via email Monday. He expects Take-Two to take a “hands-off” approach to managing the combined company, which will be led by Zelnick.

Although FarmVille is Zynga’s best-known game, it has released several other notable titles, including CSR Racing, Empires & Puzzles, and Warner Bros.’ based Harry Potter: Puzzles & Spells. Harry Potter franchise.

Take Two, which is known for Grand Theft Auto and other successful console and PC franchises, hopes to capitalize on the continued growth of mobile gaming, which accounts for more than half of the entire video game industry. .

Take-Two, which had $6.1 billion in net bookings in the 12 months ended Sept. 30, 2021, said it expects mobile to account for more than 50% of its net bookings globally. next fiscal year, up from 12% in fiscal 2022. The company defines net booking as the “net amount of products and services sold digitally or physically” over a certain period.

Zelnick said he expects the deal to create annual cost synergies of $100 million in the first two years after closing and potential net bookings of at least $500 million over time. time.

The deal follows a series of consolidation efforts in the $180 billion video game industry.

Microsoft bought Bethesda, the company behind the Fallout and The Elder Scrolls franchises, for $7.5 billion in 2020, while Electronic Arts acquired UK racing game developer Codemasters for $1.2 billion. dollars later that year. In 2021, Tencent announced deals to buy British game studio Sumo Group, as well as Turtle Rock Studios, the American creator of the zombie game Back4Blood.

CNBC’s Jessica Bursztynsky contributed to this report.

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