Take-Two Interactive, creators of Grand Theft Auto among other popular video games will acquire Zynga, which has titles like Farmville and Harry Potter under its portfolio in a cash and stock transaction valued at $9.861 per Zynga share.
Based on the market close as of January 7, the total enterprise value is approximately $12.7 billion.
Under the terms and subject to the conditions of the agreement, Zynga stockholders will receive $3.50 in cash and $6.361 in shares of Take-Two common stock for each share of Zynga common stock at the closing of the transaction. The purchase price represents a premium of 64% to Zynga’s closing share price on January 7.
This acquisition unifies two global leaders in the interactive entertainment business and establishes Take-Two as one of the largest and most diversified mobile game publishers in the industry. Both companies have created and expanded iconic franchises, which will combine to form one of the largest and most diverse portfolios of intellectual properties in the sector.
Apart from Grand Theft Auto, Take-Two’s labels include Red Dead Redemption, Midnight Club, NBA 2K, BioShock, Borderlands, Civilization, Mafia, and Kerbal Space Program. Other well known games in Zynga’s portfolio includes titles such as CSR Racing, Empires & Puzzles, Golf Rival, High Heels!, Merge Dragons!, Toy Blast, Words With Friends, and Zynga Poker.
Strauss Zelnick, Chairman and CEO of Take-Two, said: “We are thrilled to announce our transformative transaction with Zynga, which significantly diversifies our business and establishes our leadership position in mobile, the fastest growing segment of the interactive entertainment industry.
“This strategic combination brings together our best-in-class console and PC franchises, with a market-leading, diversified mobile publishing platform that has a rich history of innovation and creativity. Zynga also has a highly talented and deeply experienced team, and we look forward to welcoming them into the Take-Two family in the coming months.
“As we combine our complementary businesses and operate at a much larger scale, we believe that we will deliver significant value to both sets of stockholders, including $100 million of annual cost synergies within the first two years post-closing and at least $500 million of annual Net Bookings opportunities over time.”
Mobile gaming is the fastest growing segment within the industry, with an estimated $136 billion in gross bookings in 2021, and an expected compound annual growth rate of 8% over the next three years.
Frank Gibeau, CEO of Zynga, added: “Combining Zynga’s expertise in mobile and next-generation platforms with Take-Two’s best-in-class capabilities and intellectual property will enable us to further advance our mission to connect the world through games while achieving significant growth and synergies together.
“I am proud of our team’s hard work to deliver a strong finish to 2021, with one of the best performances in Zynga’s history. We are incredibly excited to have found a partner in Take-Two that shares our commitment to investing in our players, amplifying our creative culture, and generating more value for stockholders.”
Strategic rationale
Combined company is well-positioned to capitalise on the interactive entertainment industry’s strong tailwinds, including a leadership position in mobile. The video game sector has experienced rapid growth over the last few years and is now the largest vertical in the entertainment industry. The transaction is expected to establish Take-Two as a leader in mobile gaming, with mobile expected to comprise over 50% of its Net Bookings in Fiscal Year 2023 (as compared to an estimated 12% in Fiscal Year 2022).
Formation of an industry-leading portfolio, comprising Take-Two’s intellectual properties and Zynga’s renowned mobile titles. The transaction will create a powerful and diverse portfolio of industry-leading titles that span key platforms and genres across interactive entertainment, developed by some of the most creative and forward-thinking talent within the industry.
The combined entity has significantly greater scale, with $6.1 billion in Net Bookings, and $769 million in Adjusted Unrestricted Operating Cash Flow on a pro-forma basis for the trailing twelve-month period ended September 30, 2021. Looking ahead, the combined company is expected to deliver a 14% compound annual growth rate for Net Bookings over the three-year period from Take-Two’s Fiscal Years 2021 through 2024.
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 U.K. racing game developer Codemasters for $1.2 billion later that year. In 2021, Tencent announced deals to buy British gaming studio Sumo Group, as well as Turtle Rock Studios, the U.S.-based creator of zombie game Back4Blood.
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