Take-Two Interactive is expanding in the mobile games market with an agreed takeover of Zynga for USD 12.7 billion. The enterprise value represents a 64 percent premium on Zynga's last closing share price.
Take-Two will pay USD 9.861 per Zynga share, including USD 3.50 in cash and USD 6.361 in shares of Take-Two common stock. The company has arranged USD 2.7 billion in funding from JP Morgan and will use also its existing cash and a debt issue to fund the acquisition.
The company expects to benefit from a more diversified games portfolio with the takeover of Zynga, acquiring popular mobile games such as Farmville and Words with Friends to add to its current range largely centred on console and PC games. In addition to strong user growth, the mobile games market brings more recurring revenues, thanks to in-app purchases and new subscription services.
The deal is expected to grow the mobile share of Take-Two's net bookings to 50 percent by fiscal 2023, compared to just 12 percent in the current fiscal year to March 2022. Together the two companies had USD 6.1 billion in net bookings and USD 769 million in adjusted operating cash flow on a trailing 12-month basis at the end of September 2021.
Take-Two expects to realise around USD 100 million in cost savings within two years of the merger, as well as generate USD 500 million in additional net bookings, in part through cross-platform development of existing titles. Overall, it projects 14 percent compound annual growth in net bookings in the period fiscal 2021-2024, excluding the synergies and any further acquisitions.
Zynga CEO Frank Gibeau and Zynga's President of Publishing, Bernard Kim will join Take-Two and become head of its mobile operations. They will oversee integration of Zynga and the T2 Mobile Games business, which will operate under the Zynga brand as its own label within the company. Additionally, Take-Two will expand its board of directors to 10 member, add two members from Zynga’s board.
Zynga will be allowed a 45-day 'go shop' period, in which it may consider alternative offers. Take-Two aims to complete the takeover by the end of its fiscal first quarter, on 30 June. Closing is dependent on regulatory clearance as well as approval from both companies' shareholders.
