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Take-Two, the maker of Grand Theft Auto games, is buying mobile social game publisher Zynga for an enterprise value of $12.7 billion.
Take-Two is paying $9.861 a share for the company, a 64% premium over the closing price on January 7. Take-Two will pay $3.50 a share in cash and $6.361 a share in Take-Two common stock for Grand Theft Auto V and Red Dead Redemption 2.
Take-Two will combine its success in hardcore video games with its Rockstar Games label and San Francisco-based Zynga's strong position in mobile social games such as Words With Friends.
In a call with analysts, Frank Gibeau, CEO of Zynga, said that he was excited to be here today and that it would be a "transformative moment" for the company.
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The combined company will have $6.1 billion in trailing twelve-month pro-forma net bookings for the period ended September 30, 2021. The portfolios of the companies are not the same.
Zelnick is the CEO of Take-Two Interactive.
Take-Two Interactive.
Take-Two is excited to announce that it has entered into a transaction with Zynga, which will significantly diversifies our business and establishes our leadership position in mobile, the fastest-growing segment of the interactive entertainment industry. The 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.
He added, "Zynga has a highly talented and deeply experienced team, and we look forward to welcoming them into the Take-Two family in the coming months." We believe that we will deliver significant value to both sets of stockholders by combining our businesses and at least $500 million of annual net bookings opportunities over time.
As the deal closes and the analysis is completed, Take-Two will have more to say.
There are 183 million monthly active users of the game developer. Within the first two years after closing, the transaction is expected to deliver approximately $100 million of annual cost synergies.
Gibeau said that combining the expertise of both Take-Two and Zynga will allow them to further advance their mission to connect the world through games. I am proud of our team for their hard work and for delivering one of the best performances in the history of the company. We are very excited to have found a partner in Take-Two that shares our commitment to investing in our players and generating more value for stockholders. With this transaction, we will be able to create even better games, reach larger audiences and achieve significant growth as a leader in the next era of gaming.
Both companies have created game franchises that will combine to form one of the largest and most diverse portfolios of intellectual properties in the sector.
Take-Two has labels that include Grand Theft Auto, Red Dead Redemption, NBA 2K, BioShock, and Kerbal Space Program, while Zynga has labels that include CSR Racing, Empires.
The video game sector has experienced rapid growth over the last few years, and is now the largest vertical in the entertainment industry.
The mobile gaming segment is expected to grow at a compound annual growth rate of 8% over the next three years.
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 the fiscal year 2023.
The transaction will bolster Take-Two's mobile offerings, which include popular games such as Dragon City, Monster Legends, Top Eleven, Two Dots, and WWE SuperCard, and consist of an array of titles that focus on many of the most popular genres in mobile gaming.
The combined entity will have $769 million in adjusted unrestricted operating cash flow on a pro-forma basis for the trailing twelve-month period ended September 30, 2021. The combined company is expected to deliver a compound annual growth rate for net bookings of 14 percent over the next three years.
The portrait and lifestyle shoot took place at the headquarters of Zynga in San Francisco, CA. Employees and their dogs are in the picture.
The image is from Zynga.
Take-Two said that the addition of mobile titles from Zynga will expand their base of recurrent consumer spending. Take-Two will increase its sources of revenue through the addition of Zynga's mobile business and upcoming releases, which will help reduce volatility across reporting periods that has historically been driven by the cadence of Take-Two.
The companies will have thousands of game developers. The company has nearly 3,000 employees.
The deal will allow Take-Two to take more of its intellectual properties to the mobile game market.
An analyst asked if the IDFA change made it harder for Zynga to stand on its own, as it made it harder for Apple to focus on user privacy over targeted ads. Gibeau said the deal would drive shareholder value from the additional scale that would help it deal with things like IDFA.
The teams at Take-Two and Zynga will use best-in-class practices for live operations to enhance and grow existing titles. Key opportunities include cross-marketing through a larger, shared customer database and improving game economies through more effective data analytics and machine learning models.
The use of the Chartboost advertising platform by Zynga will improve new user acquisition through better audience targeting and will help achieve greater yields, the copmaies said.
The deal will allow both companies to expand into areas such as India and the Middle East, which are growth markets. It will add an enhanced focus on technological innovation and new business models that will utilize the collective knowledge of forward- thinking talent. New business models that can come with it are what the company is focusing on.
Zelnick will continue to serve as chairman and CEO, and the management team of Take-Two will continue to lead the combined company. Gibeau and Kim will lead the management team for the combined business of T2 Mobile Games and the strategic direction for Take-Two's mobile efforts. Upon the closing of the transaction, Take-Two will expand its board of directors to 10 members, with two members from the board of directors of Zynga.
Zelnick said that other acquisitions will still be interesting to the companies as they will close the deal with a fortress-like balance sheet and will be in a position to pick up more great teams and intellectual properties.
Take-Two is making a lot of money from the success of the online game, GTA Online.
The image is from Rockstar Games.
If Take-Two's VWAP ends in a range from $156.50 to $181.88 on the third trading day prior to the closing, the exchange ratio will be adjusted to deliver total consideration. If the VWAP exceeds the higher end of the range, the exchange ratio would be 0.0350 per share, and if the VWAP falls below the lower end of the range, the exchange ratio would be 0.0406 per share.
The final number of Take-Two shares will be between 50.3 million and 58.6 million. Current Take-Two stockholders will own between 67.2% and 70.4% and current Zynga stockholders will own between 29.6% and 32.8% of the combined company on a fullyDiluted basis, including the shares associated with expected settlement of the two outstanding series.
The cash component of the transaction will be funded through a combination of cash from its balance sheet as well as proceeds of new debt issuance.
Under the terms of the merger agreement, the board of directors of the company can potentially negotiate with other parties that offer alternative proposals during a period of 45 days following the execution of the definitive agreement.
The transaction is expected to be completed during the first quarter of Take-Two's fiscal year, which ends in June 30, 2022, and is subject to the approval of both Take-Two and Zynga stockholders.
The transaction was approved by the Take-Two board. The voting agreements were entered into by the directors and executives of Take-Two and Zynga.
J.P. Morgan and LionTree Advisors are both financial advisers to Take-Two. Goldman Sachs is acting as financial advisor to Wilson Sonsini Goodrich &Rosati.
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