ZNGA Stock Shoots 40% after Take-Two Announces Zynga $12.7B Acquisition

UTC by Bhushan Akolkar · 3 min read
ZNGA Stock Shoots 40% after Take-Two Announces Zynga $12.7B Acquisition
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Zynga (ZNGA) stock rallies a solid 40% after an eye-popping deal of its acquisition from Take-Two. Analysts have already started giving 50% higher price targets from the current levels.

On Monday, January 10, the share price of Zynga Inc (NASDAQ: ZNGA) stock shot up by a staggering 40% after news popped up that video game giant Take-Two Interactive had decided to acquire Zynga, the FarmVille creator for a staggering $12.7 billion.  As a result, the ZNGA stock ended Monday’s trading session at $8.44 per share. The acquisition of Zynga would be a complete cash and stock deal said Take-Two. Besides, the video game giant announced that it will be acquiring all outstanding shares of Zynga at $9.86 apiece. Meaning Take-Two was ready to pay a staggering 64% over the closing price of Zynga last Friday.

As part of the cash+ stock deal, Take-Two said that Zynga shareholders will receive $3.50 in cash and the rest $6.36 in Take-Two stock for each share of Zynga. However, the deal still remains subject to shareholders and regulatory approval but is likely to close by June 30, 2022. Speaking to CNBC’s Squawk On The Street, Take-Two CEO Strauss Zelnick said:

“We are trying to build a business over a very long period of time. We’ve paid attention to creating value for our players, for our colleagues and for our shareholders, and that’s worked out over a very long period of time.”

While the ZNGA stock price rallied by 40%, Take Two’s stock (NASDAQ: TTWO) tanked by 14%. The TTWO stock ended at $142.99. Take-Two said that the deal will give Zynga an implied enterprise value of $12.7 billion.

The Details of the Zynga Acquisition Deal

Take-Two said that part of the deal shall be funded with JPMorgan financing around $2.7 billion. The remaining payment will happen through cash on its balance sheet along with the proceeds of new debt issuance.

Michael Pachter, managing director of equity research at Wedbush Securities called this acquisition a “solid move”. Pachter has given a price target of $15 for the ZNGA stock. This is 50% higher than the deal value offered. In an email to CNBC, Pachter said:

“Take-Two should see an acceleration of its mobile business, including taking existing brands and turning them into mobile franchises”.

Take-Two CEO Strauss Zelnick said that he expects the deal to create $100 million in annual cost synergies within the first two years of closing. He further expects a potential net booking of at least $500 million over time.

Zynga is best known for the Farmville series which initially became very popular on Facebook. Zynga has turned a large focus on mobile while looking to capitalize on explosive growth in the smartphone era. Zynga also has some other popular titles under the belt such as CSR Racing, Empires & Puzzles, and Harry Potter: Puzzles & Spells.

On the other hand, Take-Two is popular for names such as Grand Auto Theft. It also has other blockbuster console and PC franchises. The acquisition will help it expand its footprint in mobile gaming.

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