Take-Two Interactive to buy FarmVille Maker Zynga in $ 11 billion deal

[ad_1]

Take-Two Interactive Software Inc. has agreed to buy Zynga Inc. in an approximately $ 11 billion deal as the maker of Grand Theft Auto seeks to expand its mobile portfolio with hits like Words With Friends and FarmVille.

The cash and stock deal announced on Monday is one of the video game industry’s largest acquisitions. Take-Two CEO Strauss Zelnick said buying Zynga would give him a strong position in mobile, which has been the fastest growing segment of the global video game industry in recent years.

“More than 50% of our net bookings will come from mobile devices at the close of this transaction,” Zelnick said in an interview with the Wall Street Journal. He added that the combined company will have more than a billion users, creating an opportunity to cross-promote content to a wider audience.

Under the cash and stock agreement, Zynga shareholders would receive $ 9.86 for each share they own, including $ 3.50 in cash and $ 6.36 in Take-Two stock. The companies said the deal has a company value of $ 12.7 billion after adjusting for Zynga’s convertible stock, cash and debt.

The deal, which is expected to close by mid-year, represents a roughly 64% premium over Zynga’s $ 6 share price at Friday’s close. At noon on Monday, Zynga stock was up 42% to $ 8.49, while Take-Two was down 16% to $ 138.89.

“While we never want to be dismissive about a drop in the share price, we are judged by our share price after all,” Zelnick said. “We have always felt that we play long term.”

Take-Two is best known for its computer and console game franchises like Grand Theft Auto and NBA 2K. “Grand Theft Auto V”, launched in 2013, is one of the best-selling video games of all time. It has sold more than 155 million units worldwide, according to company data.

In recent years, Take-Two has expanded into mobile gaming through the acquisition of Playdots, SocialPoint and Nordeus studios. Although Zynga began creating browser-based games for Facebook, it later shifted its focus to mobile gaming. Today, his portfolio includes such hits as “CSR Racing” and “Zynga Poker”.

Mr. Zelnick said that an interesting part of Zynga is that it has its own advertising platform. Game makers rarely have such a platform internally, as most rely on third parties.

Zynga’s stock tumbled late last summer when the company took a hit from Apple Inc.’s new privacy rules, which make it more difficult to track users for the purpose of selling targeted advertising. Zynga also reported a larger-than-expected audience decline due to easing restrictions on the pandemic.

subscribe to the newsletter

Technology

A weekly summary of technical reviews, headlines, columns and your questions answered by WSJ Personal Tech gurus.

More recently, however, the company has shown signs of recovery. In November, Zynga posted record bookings in the third quarter and cut the loss as advertising sales nearly doubled. The company then said it expects full-year revenue of $ 2.78 billion and $ 2.81 billion in net bookings, which was unchanged from the previous quarter.

Take-Two’s latest earnings report, released in November, covered the fiscal second quarter and showed modest increases in revenue and net bookings. At the time, the company also raised its outlook for the full fiscal year ending in March, saying it expects revenue of between $ 3.35 billion and $ 3.45 billion and net bookings of $ 3.3 billion to $ 3.4 billion.

During a call with analysts, Mr. Zelnick said he avoided one of the hottest terms in the video game space today, the metaverse.

“This is a word we have stayed away from today,” he said in an interview with the Journal. But he added that Take-Two and Zynga both see opportunities with related technologies like non-fungible tokens or NFTs.

“I think both teams are very focused on what Web 3.0 will bring,” he said, referring to another term for the next evolution of the Internet.

A battle of the tech industry is taking shape in the metaverse. WSJ tech journalist Meghan Bobrowsky explains the concept and why tech companies like Facebook, Roblox and Epic Games are investing billions to develop this digital space. Photo: Storyblock

Mr. Zelnick said Zynga will be inducted into Take-Two’s mobile games division and will continue to operate independently, as is the case with its other units such as Rockstar Games and 2K. It’s possible Zynga could make mobile games based on Take-Two’s console and computer franchises like Red Dead Redemption and Borderlands, he said.

“One of the key opportunities is to bring our core intellectual property to the mobile business, in many cases for the first time,” Zelnick said.

He added that Take-Two has been in a relationship with the Zynga management team for a while. Mr. Zelnick said Take-Two admires Zynga’s free-to-play business model, which allows players to download games for free but with the ability to spend money on virtual goods.

According to estimates by Newzoo BV, the global video game industry has been one of the biggest beneficiaries of the pandemic’s social distancing restrictions, with consumer spending on gaming software increasing by about 23% in 2020 compared to last year. Last year, however, that growth shrank to about 1.4 percent, bringing the total to about $ 180 billion, the analyst firm said.

Consumer spending on mobile games has been particularly robust in recent years, outpacing that for consoles and computer games combined.

Commercial activity has also been heavy in the video game industry, which generated roughly $ 180.3 billion in global consumer spending last year, according to analyst firm Newzoo BV. Last year, Microsoft Corp. bought the owner of the popular Doom video game franchise for $ 7.5 billion, its largest game acquisition. Also last year, Electronic Arts Inc. acquired Glu Mobile Inc. for $ 2.4 billion and Playdemic Ltd. for $ 1.4 billion.

Notably, EA also bought Codemasters Group Holdings last February for $ 1.2 billion after Take-Two initially made an offer for the company, known for its Formula 1 racing series.

Zynga has also grown through commercial deals in recent years, having bought studios such as Rollic and StarLark. The company also bought Chartboost, a mobile advertising and monetization platform, for approximately $ 250 million in May in a move to improve its ad targeting capabilities.

Last year, Zynga’s mobile game “Toon Blast” was its main revenue generator, amassing over $ 415 million from player spending, Sensor Tower Inc. estimates Zynga has acquired the producer of Toon Blast. , Istanbul-based Peak in 2020 for $ 1.8 billion.

The deal between Take-Two and Zynga would benefit both companies, said MKM analyst Eric Handler, who recently named the latter as one of his best stock picks for 2022. “The industry of video games is becoming more and more of a grand scale, “he said.

—Matt Grossman contributed to this article.

Write Sarah E. Needleman at [email protected]

Copyright © 2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

[ad_2]