Take-Two
Interactive Software, known for blockbuster game
franchises like Grand Theft
Auto and Red
Dead Redemption, today announced a deal to
acquire mobile game developer Zynga at a $12.7 billion enterprise value.
The cash-and-stock deal, which at $9.86 a
share represents a 64% premium to Zynga stock’s
closing price on Friday, sent Take-Two shares tumbling 13% today. It was the
S&P 500 index's biggest laggard. Zynga is best known for social games like FarmVille and Words
with Friends.
My Barron's colleague Sabrina
Escobar and I
write about it here:
Wedbush analyst Michael
Pachter says the deal price looks like a bargain for Take-Two, noting he has a
$12 target on Zynga stock.
“I think they know that, and think Zynga guys
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 steady grower than they were before with an unclear release
schedule for their large games. I think it’s a great fit.”
Clearly some traders are skeptical,
but Pachter told us that he believes the gap between the deal price and
what the market recently priced Zynga at, unfairly or not, reflects a wealth
transfer from Take-Two investors to Zynga investors.
“I’m not sure that is fair, but I think that
is what is happening,” Pachter added.
I spoke with Take-Two CEO Strauss
Zelnick today. The longtime entertainment
executive made the case for the deal in a phone interview:
This will create one of the largest publicly
traded interactive entertainment companies with over $6 billion in net bookings
on a trailing-12-month basis just to start, and an expectation that we’ll grow
together about 14% a year over the next few years. And that’s without regard to
revenue opportunities that we can create together.
You can read more of our conversation here.
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