Zynga's stock soared on Monday after Take-Two Interactive announced it would acquire the mobile game developer in a cash-and-stock deal with an enterprise value of $12.7 billion. The deal looks like a bargain, according to at least one analyst, though Wall Street traders may beg to differ.
Zynga (ticker: ZNGA) stock jumped 41% to close at $8.44, while Take-Two (TTWO) fell 13% to close at $142.99. Take-Two stock jumped 6.8% in after-hours trading.
Under the terms of the deal, Zynga stockholders will receive $3.50 in cash and $6.36 in stock at the close of the transaction, for a total of $9.86 per Zynga share. The purchase price is a 64% premium over Zynga's closing price on January 7.
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The combined company's CEO will remain, while Zynga's management team will oversee the strategic direction for the company's mobile efforts. Zynga will retain the two new board seats, expanding the current board to 10 members.
"The acquisition significantly diversifies [Take-Two's] business and establishes our leadership position in mobile, the fastest growing segment of the interactive entertainment industry," Zelnick said in the news release.
Wedbush analyst Michael Pachter says the deal's price looks like a bargain for Take-Two, noting that he has a $12 target on Zynga stock.
“I think they know, and think that the Zynga folks are excited about the opportunity to gain access to various Take-Two franchises,” Pachter wrote in an email. "Take-Two goes from 10% mobile to over 50%, making them a more stable producer than ever before with unclear release schedules for their big games. I think it's a great fit."
The analyst believes that Take-Two stock's decline was more than offset by the difference between the deal price and Zynga's price recently in the market, noting that Take-Two investors are paying the difference.
"I'm not sure it's fair, but I think that's what's happening," Pachter said.
Raymond James analyst Andrew Maroc wrote in a note Monday that the deal would make Take-Two a major mobile player. “Mobile continues to be the largest and fastest growing platform in gaming, and this deal shows how serious TTWO is in addressing this,” Maroq wrote.
Mobile gaming segment expected to grow by 8% annually
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in the next three years. Take-Two predicts that mobile will comprise more than 50% of its net bookings in fiscal year 2023, compared to 12% in 2022.
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, including "Farmville," "Words with Friends," "Harry Potter: Puzzles and Spells," and "Zynga Poker."
The acquisition is expected to add $100 million in annual cost synergies within the first two years and at least $500 million of annual net booking opportunities over time, the companies said. These booking opportunities include creating new mobile games through Zynga's intellectual property and mobile developers, customizing live gaming experiences, and expanding Zynga's advertising platform.
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and geographical expansion throughout Asia.
The combined company can deliver a 14% annual growth rate for net bookings through 2024 and $6.1 billion in net bookings for the one-year period ended September 30, 2021.
Take-Two is funding the acquisition through a combination of cash from its balance sheet, a $2.7 billion loan from JPMorgan Chase, and new debt issuance. The deal is expected to be completed during the first quarter of Take-Two's fiscal year ending June 30, 2022.