Take-Two Announces What Might Be The Biggest Gaming Company Acquisition in History at $12.7B

$12.7 billion Zynga deal is bigger than Microsoft’s Bethesda acquisition.

via washingtonpost.com :


Video game publisher Take-Two Interactive announced Monday it will acquire mobile game maker Zynga for an estimated $12.7 billion, the highest sum ever paid to buy another video game company. The deal continues an industry trend of game publishers coveting and courting mobile game makers.

Zynga makes the popular mobile titles “FarmVille” and “Words With Friends.” Take-Two is known for publishing blockbuster hits like “BioShock,” “Red Dead Redemption 2” and “Grand Theft Auto V.” Take-Two estimated in a news release that the Zynga acquisition will net the company over $500 million in annual sales “over time” from making new mobile versions of its console and PC titles once it moves over Zynga’s nearly 3,000 employees.

“We very much think there’s an opportunity to bring numerous IPs from Take-Two to mobile. And we’re highly ambitious about doing it. We haven’t talked about any particular titles, of course,” Take-Two CEO Strauss Zelnick told The Washington Post when asked about the possibility of an original “Grand Theft Auto” mobile game down the line. “This opportunity wasn’t available to us years ago, it only became available to us relatively recently. And we’re very selective.”

The purchase will be made using both cash and shares of stock, according to Take-Two. Both companies were already publicly traded on the Nasdaq. Zynga’s stock is up over 40 percent Monday at over $8 per share, while Take-Two is down roughly 15 percent at around $140 per share.

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“The stock actually went down meaningfully today, and there have been other times when our stocks have declined on a one- or two-day basis, in a way that didn’t make much sense to us. I never argue with the market,” Zelnick said. “While we’re not cavalier about any one day’s trading, not in the least, we’re very focused on the long term and always have been. And over the course of many years of managing this business, of course, we’ve — generally speaking — outperformed the market and outperformed our peers.”

Take-Two is financing $2.7 billion of the deal from J.P. Morgan. It will fund the cash portion partially through its own assets and by taking on additional debt to the tune of about $1.2 billion, which Zelnick said the company expects to pay off within a few years. The transaction is set to be completed by June 30 this year, pending approval of regulators and stockholders of both companies.

Take-Two also anticipates saving $100 million by combining the two companies and cutting general expenses. Zelnick emphasized that layoffs are “not a starting point” when Take-Two thinks about cutting costs, and that there are other areas where third-party costs will decline instead.

“This is far and away the largest acquisition that we’ve done,” he said. “Our focus is, primarily here going forward, more organic growth. … As long as we remain highly disciplined, it should work out. Post-closing, we will still have a fortresslike balance sheet. So certainly, we’ll be in a position to do more acquisitions.”

Before acquiring Zynga, Take-Two’s portfolio has been predominantly console- and PC-based, but the deal will expand the business with multiple mobile gaming successes. Zynga CEO Frank Gibeau said in a statement to The Washington Post that he was excited to find a partner that would help “create even better games, reach larger audiences and achieve significant growth.”

Analysts believe the resulting deal will catapult Take-Two into the world of mobile gaming.

“It’s a shrewd decision by Zelnick to reposition Take-Two as a game publisher that can cater to the full breadth of the market,” said Joost van Dreunen, a lecturer on the business of games at the New York University Stern School of Business.

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Craig Chapple, mobile insights strategist at Sensor Tower, noted that mobile gaming is more profitable than console or PC gaming alone. The acquisition also brings with it Zynga’s substantial foothold in the international mobile gaming market; its consumers spent more than $2 billion on its properties last year — six times that of Take-Two’s roughly $330 million in mobile in-game revenue, according to data from Sensor Tower.

The proposed purchase of Zynga is some $4 billion more than Chinese conglomerate Tencent paid for an 81.4 percent majority in Finland’s Supercell — another mobile game maker that developed the Clash of Clans franchise — in 2016. That deal of $9.27 billion served as the previous high mark for acquiring a video game company. In 2020, Microsoft acquired ZeniMax Media, which includes highly regarded game maker Bethesda Softworks, for $8.1 billion. In 2015, Activision Blizzard paid $5.9 billion to acquire King, the mobile game maker behind “Candy Crush.”

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Van Dreunen noted that while Activision Blizzard faces multiple lawsuits and government investigations over its corporate culture and allegations of workplace harassment and discrimination, this could be an opportunity for Take-Two to surpass its competitor in the video game industry.

“As Activision Blizzard struggles to retain talent and seeks to counteract the acid reflux of its toxic work culture that has soured investor sentiment, Take-Two emerges as an unencumbered, healthier alternative that’s on the way up,” he said.

Zelnick said that “to the extent that [Take-Two’s] competitors have issues, that’ll be something they have to focus on,” and that he had “great respect for [his] peers in the industry.” He said that Take-Two was very focused on its own challenges and exploiting opportunities that it sees.