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




Take-Two interactive software Inc.

TTWO -14.23%

agreed to buy Zynga Inc.

ZNGA 41.92%

in a deal worth around $ 11 billion as the manufacturer of Grand Theft Auto looks to expand its mobile portfolio with hits such as Words With Friends and FarmVille.

The cash-and-stock deal announced on Monday is one of the video game industry’s biggest acquisitions. Take-Two CEO Strauss Zelnick said the acquisition of Zynga would give it 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 orders will come from mobile when this transaction is completed,”[ads1]; Mr. Zelnick said in an interview with The Wall Street Journal. He added that the combined company will have more than one billion users, which creates an opportunity to cross-promote content to a wider audience.

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

The deal, which is expected to close in the middle of the year, represents a premium of approximately 64% to Zynga’s share price of $ 6 at the end of Friday. At midday trading on Monday, Zynga shares rose 42% to $ 8.49, while Take-Two fell 16% to $ 138.89.

“Even if one never wants to be cavalier about a decline in their stock price, we are, after all, judged by our stock price,” Mr. Zelnick said. “We have always seen that we play in the long run.”

Take-Two is best known for its computer and console game franchises such as Grand Theft Auto and NBA 2K. “Grand Theft Auto V”, which was 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 the company’s data.

In recent years, Take-Two has expanded into mobile gaming through the acquisition of the studios Playdots, SocialPoint and Nordeus. Although Zynga started making browser-based games for Facebook,

it later shifted its focus to mobile gaming. Today, the portfolio includes hits such as “CSR Racing” and “Zynga Poker”.

Mr. Zelnick said that an attractive part of Zynga is that it has its own advertising platform. It is rare for game producers to have such a platform internally, as most are dependent on third parties.

Shares in Zynga fell late last summer when the company received a blow from Apple Inc. sine

new privacy policies, which make it harder to track users for the purpose of selling targeted advertising. Zynga also reported larger-than-expected declines in audiences due to easing of pandemic restrictions.

Lately, however, the company has shown signs of recovering. In November, Zynga reported record orders in the third quarter, reducing losses as ad sales nearly doubled. The company then said it expects full-year revenue of $ 2.78 billion and $ 2.81 billion in net orders, which were unchanged from the previous quarter.

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

In a conversation with analysts, Mr. Zelnick said he avoided one of the more buzzing terms in the video game space today, the meta verse.

“It’s a word we stayed away from today,” he said in the Journal interview. But he added that both Take-Two and Zynga see opportunities with related technologies such as 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 development of the Internet.

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

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

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

He added that Take-Two has had a relationship with Zynga’s management team for some time. 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.

The global video game industry was one of the biggest benefits of the pandemic’s restrictions on social distancing, with consumer spending on gaming software jumping about 23% in 2020 from the previous year, according to estimates from Newzoo BV. Last year, however, growth shrank to around 1.4%, bringing the total to around $ 180 billion, the research firm said.

Consumer spending on mobile games has been particularly robust in recent years, and has surpassed spending on console and computer games combined.

Contract activity has also been high in the video game sector, which generated a total of an estimated $ 180.3 billion in global spending last year, according to research firm Newzoo BV. Last year Microsoft Corp.

bought the owner of the popular Doom video game series for $ 7.5 billion, the largest game acquisition. Also last year, Electronic Arts Inc.

acquired Glu Mobile Inc. for $ 2.4 billion and Playdemic Ltd. for $ 1.4 billion.

In particular, EA also acquired Codemasters Group Holdings in February last year for $ 1.2 billion after Take-Two originally bid for the company, which is known for its Formula 1 car racing series.

Zynga has also grown through deals in recent years, having bought studios such as Rollic and StarLark. In May, the company also acquired Chartboost, a mobile advertising and revenue-generating platform for approximately $ 250 million, in a move that aims to help improve ad targeting capabilities.

Last year, Zynga’s “Toon Blast” mobile game was its largest revenue generator, raising more than $ 415 million from gaming expenses, according to estimates from Sensor Tower Inc. Zynga acquired the maker of Toon Blast, Istanbul-based Peak, in 2020 for $ 1.8 billion.

The agreement between Take-Two and Zynga will benefit both companies, said MKM analyst Eric Handler, who recently named the latter as one of his best stock choices for 2022. “The video game industry is growing in scale,” he said.

Write to Sarah E. Needleman at sarah.needleman@wsj.com

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