Zynga Shares Skyrocketed After Announcing A Merger With Take-Two Interactive

Zynga shares shot up 45% following news of its Take-Two Interactive combination in a deal valuing the company at $12.7 billion.
Jan. 11, 2022
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Zynga (NASDAQ: ZNGA) will combine as one with Take-Two Interactive (NASDAQ: TTWO) following a $12.7 billion bid -- or a 67% premium on Zynga's previous valuation -- for the mobile games company. The merging of the two companies will make it one of the largest game publishers in the world with a valuation in the region of $28 billion. 

What does Take-Two do?

Take-Two is a video game publisher that makes video games for Xbox and Playstation consoles as well as PCs. Some of the most notable subsidiary brands owned by Take-Two include Rockstar Games and 2K Games -- the companies behind 'GTA', 'Red Dead Redemption', 'Bioshock', and multiple 'NBA2K' titles that are reproduced on a yearly basis -- many of which are among the top-grossing games of all time, by sales. 

What does Zynga do?

Zynga is a mobile games platform best-known for titles such as 'Farmville', 'Words with Friends', and its 'Zynga Poker' mobile applications. Peak Games, Small Giant Games, and Gram Games are among the companies under Zynga's umbrella company, which together, operate in over 175 regions with total downloads now surpassing 4 billion. The majority of Zynga's games are free to download, so its primary revenue streams come from in-app purchases and mobile advertising. 

What does the deal mean for Zynga shareholders?

Zynga shareholders are in luck. The definitive agreement priced the mobile games publisher at a 67% premium which sent current shareholders' holdings soaring yesterday. For each share owned, shareholders will receive $3.50 in cash, along with $6.36 worth of Take-Two Interactive shares, which are currently priced in the region of $143 following the news. This, in essence, means Zynga holders will receive one Take-Two share for every 23 shares owned, at the current valuations.

CEO Strauss Zelnick will continue to lead the Zynga division, with Take-Two's existing management overseeing the combination and the strategic direction of the two platforms going forward.

Will the combination be positive for Take-Two?

Shares fell 13% on the news, and even though the combination values Zynga below its initial IPO price, Take-Two is paying a hefty premium in what is currently a downward-trending market for growth stocks.

It's definitely not the match-up that was expected. Although both companies are authoritative brands in their respective markets, there's clearly a divergence in the quality of their game lineups -- obviously, Take-Two being ahead on that mark.

But this could be the sacrifice for long-term growth opportunities. By breaking into the fast-growing mobile gaming market -- a segment that saw $136 billion in gross bookings in 2021 and that is estimated to grow at an 8% compound annual growth rate (CAGR) over the next three years -- we could even see the combination of titles being brought to brand new audiences.

Who knows? Maybe 'GTAVille' is coming to a device near you.


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