Take-Two wants to buy Zynga for $ 12.7 billion to become leader in mobile games

(BFM Bourse) – The planned merger between the American publishers Take-Two (Red Dead Redemption, Grand Theft Auto …) and Zynga (FarmVille, Empires & Puzzles …) would give birth to a new giant of video games, leader in the rapidly growing mobile games segment. Take-Two would also get its hands on the Chartboost ad targeting platform.

Born in 1993 – before the generalization of the Internet, when the CD-Rom was the favored medium for video games – the number three American in the sector, Take-Two Interactive, is preparing to buy an emblematic player in the mobile generation, Zynga (born in 2007, the year of the explosion of smartphones with the Apple iPhone). The transaction, which should be completed by the end of the first half of the year, would make the group one of the world’s leading publishers of mobile games, the fastest growing segment of the industry, by enabling it in particular to transpose its flagship titles on mobile.

A joint statement revealed Monday the marriage project between Take-Two and Zynga, in the form of the signing of a merger agreement providing for a mixed offer of the first over the second. The transaction is sizeable as it gives Zynga an enterprise value of $ 12.7 billion, which is considerable on the scale of Take-Two (which weighed around $ 19 billion before this announcement). The buyer offers Zynga shareholders to buy back each security in exchange for $ 3.50 plus the equivalent of $ 6.36 in shares (adjustable fraction in the event of a very large variation in the price of Take-Two, measured during the month prior to finalization versus the price at the time of signing the agreement). The total price (equivalent to $ 9.86 per share) thus represents an instantaneous premium of 64% on the price of Zynga, but reflects a certain opportunism of Take-Two given the fall in the price of the target since the peak of more than 11 dollars reached in February 2021.

Each in his specialty, the two promised have made themselves known through franchises such as Grand Theft Auto, Red Dead Redemption, BioShock or NBA 2K for Take-Two, Zynga Poker, FarmVille, Toon Blast or even CSR Racing for Zynga.

Half of mobile revenue after merger

The boss of Take-Two Strauss Zelnick, called to take the reins of the new group, hailed a transformative transaction “which significantly diversifies our activities and places us in a leading position in mobile, the fastest growing segment of the industry. interactive “. For the CEO, the combination of the strengths and assets of the two companies will generate significant value creation for the shareholders of each, with $ 100 million in cost synergies per year (after the first two years) and at least $ 500 million in Net Bookings development opportunities (revenue from games) over time.

Take-Two points out that mobile games represented $ 136 billion in sales in 2021, according to IDG Consulting, and are expected to experience average annual growth of 8% over the next three fiscal years according to the same firm. With more than half of the group’s income from the merger in this segment by 2023 (compared to only 12% at present for Take-Two alone), the firm would position itself as a leader in this area. Its mobile titles (Dragon City, Monster Legends, Top Eleven, Two Dots, and WWE SuperCard) would complement Zynga’s franchises to create a portfolio of games of all styles and platforms. In addition, Take-Two sees significant potential in mobile for “many of its titles” today only available on consoles and PC, without mentioning which could be primarily ported to mobile.

Advertising targeting platform

The acquirer would also get his hands on Zynga’s Charboost platform, which will better target players and in return optimize display advertising to them. The takeover also enables Take-Two to increase its presence in high-growth markets in Asia, India and the Middle East.

The new group would have a significantly larger financial scope, with $ 6.1 billion from Net Bookings and $ 769 million in operating cash flow in pro forma data for the fiscal year ended September 30. Management anticipates an average annual growth of 14% in Net Bookings over the next three years, while maintaining a solid balance sheet (in particular thanks to the payment mainly in shares) in order to continue to invest, including through new selective acquisitions.

In Europe, the announcement of this new merger in the video game sector gave a boost to the Ubisoft title, up 3.5% to 42.39 euros. The tricolor group thus capitalized 5.3 billion euros, about 6 billion dollars, far from Take-Two and more from Electronic Arts (36.7 billion dollars) and Activision Blizzard (49.7 billion).

Guillaume Bayre – © 2022 BFM Bourse

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