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🎮 Take-Two Interactive: The Need For Zing?
NYC-based video game creator Take-Two Interactive (TTWO) is acquiring fellow gaming company Zynga Inc. (ZNGA) in a cash-and-stock deal worth $12.7B. The acquirer’s shareholders were none too pleased with the deal, but the target’s counterparts had a field day! (Tweet This)
The pandemic might have made life challenging for the world at large, but for the gaming industry, these were the bubble years. The gaming deals done as of Q3 2021 were 2.5X that of the corresponding deals done in 2020. Just in Q3 2021, 85 deals totaled $6.4B. Today’s story pushes it further!
Take-Two Interactive was founded in New York City by Ryan Brant in September 1993. It currently owns two major video game labels - Rockstar Games, which was first published in 1998, and 2K, which was first published in 2005. The company's first major success came with Star Crusader, launched in 1994. Take-Two went public in April 1997 through the IPO route.
The IPO fetched the company $6.5M and $4M in venture fund promissory notes. It used the IPO proceeds to acquire rights to GameTek's Dark Colony, The Quivering, The Reap, Jeopardy! and Wheel of Fortune games. In March 1998, the company acquired BMG Interactive for $14.2M. The deal brought Grand Theft Auto and Space Station Silicon Valley into Take-Two’s ambit. Grand Theft Auto became one of the highest-selling video games of all time. Its GTA 5 version shipped 20M copies as of 2020.
The second protagonist of today's story is Zynga Inc., established in April 2007 in San Francisco. In June 2009, it launched its best-selling game Farmville on Facebook. Within six weeks of the launch, the game had 10M daily active users. Zynga went public in December 2011.
Zynga partnered with Hasbro in February 2012 and launched games such as Farmville Hungry, Words with Friends Classic, City Ville, among others. Its model didn’t find too many takers in the analyst community back then. That lack of excitement was reflected in the share price, which kept spiraling downward. As of Friday, the stock was 40% below its IPO price of $10.
The Acquisition Game
On Monday, Take-Two announced it’s acquiring Zynga at $9.86 per share, a 64% premium to Zynga's closing price on Friday. Zynga shareholders will receive $3.5 in cash and $6.36 in Take-Two stock for each share of Zynga. The deal is expected to close by June 30 this year and result in cost synergies of $100 in the first two years.
The $200B+ global gaming industry has recently seen a slew of M&A deals. Microsoft had acquired Bethesda, instrumental in games such as Fallout and The Elder Scrolls franchise, for $7.5B in 2020. Electronic Arts also acquired Codemasters for $1.2B in the same year. Last year, Tencent acquired Sumo Group and Turtle Rock Studios, known for creating Back4Blood.
Does anyone play Farmville today? If so, what are its prospects? That was the vexing question Take-Two’s shareholders had to contend with after the announcement was made. Take-Two’s shares dropped 13% on Monday before rebounding on Tuesday and Wednesday. There is concern that the company may have overpaid for Zynga.
Be that as it may, some of the analysts believe this deal should smoothen out Take-Two's revenues since console titles by themselves take years to develop. For instance, there was an Eight-year gap between Red Dead Redemption and Red Dead Redemption 2. The last GTA version, launched in 2013, does not have a release date yet for its next version.
Take-Two's shareholders may have done a double-take when the deal was announced, and the analyst community may not have a consensus on what the future holds for the combined entity. Zynga's shareholders, however, are cheering the new lease of life the company seems to have been granted. Whatever it takes to reorient Zynga’s share price towards its 52-week high of $12.32!
TTWO ended at $156.06, up 5.15%.
Company Snapshot 📈
TTWO $156.06 +7.64 (5.15%)
Analyst Ratings (26 Analysts) BUY 69% HOLD 31% SELL 0%
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Today's Market Terminology: Offshore Finance Subsidiary
An Offshore Finance Subsidiary is a wholly-owned affiliate of a company, usually incorporated in a tax haven country, whose function is to issue securities abroad for use in either the parent's domestic or foreign business
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