Wall Street sees the rationale down Take-Two's $12.7 cardinal woody to bargain Zynga, adjacent if traders hatred the transaction astatine archetypal blush.
"Take-Two is utilizing its equilibrium expanse and equity to opportunistically bargain a bully mobile plus successful a depressed market," said Jefferies expert Andrew Uerkwitz.
The Grand Theft Automaker said it would wage a 64% premium to scoop up Words With Friends developer Zynga, utilizing a premix of currency and stock. Zynga volition proceed to beryllium led by CEO Frank Gibeau, get 2 seats connected Take-Two's committee and run arsenic a standalone statement wrong the company.
The combined institution is expected to boast 8,000 crippled developers.
Take-Two shares dropped 15% connected concerns it would beryllium lured into a bidding warfare for Zynga/and oregon is overpaying for the crippled developer. Shares of Zynga soared astir 45% to $8.61, beneath the connection terms from Take Two of $9.86. Gaming rivals Electronic Arts and Activision Blizzard saw their shares diminution slightly.
"We judge determination is tremendous worth successful Zynga and wouldn't beryllium amazed if determination are over-the-top bids," added Uerkwitz.
FILE - A pedestrian walks successful beforehand of a motion astatine Zynga successful San Francisco, Tuesday, March 16, 2021. Take-Two Interactive, shaper of Grand Theft Auto and Red Dead Redemption, is buying Zynga, shaper of FarmVille and Words With Friends, successful a cash-and-stock woody with an endeavor worth of astir $12.7 billion. Take-Two said Monday, Jan. 10, 2022, it anticipates $100 cardinal successful yearly outgo savings. (AP Photo/Jeff Chiu, File)
The transaction comes arsenic Zynga shares plunged 40% successful the twelvemonth starring up to the woody being disclosed, reflecting interest connected the Street astir post-pandemic mobile gaming request and the company's improvement pipeline. Valuations connected Zynga were hovering astir five-year lows.
Take-Two's long-time CEO Strauss Zelnick told an analysts connected a telephone helium sees respective opportunities to thrust synergies from the tie-up.
One is to bring Take-Two's apical franchises specified arsenic Grand Theft Auto much aggressively to mobile platforms. Another upshot is the quality to determination faster into emerging markets with free-to-play mobile games. And lastly, the institution sees $100 cardinal successful yearly outgo savings from the woody that could beryllium reinvested oregon brought close to the bottommost line.
Added Uerkwitz, "The acquisition importantly increases TakeTwo's vulnerability to mobile (currently ~10% of revenue). More important, determination is simply a alteration successful absorption code toward focusing connected mobile for its halfway franchises by leveraging Zynga's expertise."
Brian Sozzi is an editor-at-large and anchor astatine Yahoo Finance. Follow Sozzi connected Twitter @BrianSozzi and connected LinkedIn.
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