Video game company Take-Two Interactive Software Inc. today announced plans to acquire Zynga Inc., a major player in the mobile game market, for $12.7 billion.

The deal values Zynga at $9.861 per share, a 64.5% premium over the price at which the company’s shares closed on Friday. The steep premium reflects the fact that the mobile game market, Zynga’s main focus area, plays an important role in Take-Two’s revenue growth plans.

According to research cited by Take-Two, the mobile game market is the fastest-growing segment of the video game industry with bookings of $136 billion last year. The segment is expected to grow at a compound annual growth rate of 8% over the next three years. By acquiring Zynga, Take-Two expects to increase the percentage of its revenue generated through mobile games from an estimated 12% in its current fiscal year to more than 50% the following year.

Part of the sales growth the company expects is projected to come from the estimated $500 million in net new bookings that it hopes to achieve after the deal closes. Nasdaq-traded Take-Two makes most of its revenue from selling games for personal computers and video game consoles. Zynga, in turn, specializes primarily in the mobile segment.  Take-Two plans to create mobile versions of its games by drawing on Zynga’s know-how to expand its addressable market.

The combined company is set to emerge from the deal as one of the industry’s largest players. Take-Two and Zynga have $6.1 billion in trailing pro-forma net bookings through the year ended Sept. 30.

In addition to new revenue opportunities, the companies expect to realize about $100 million of annual cost synergies within the first two years of the deal’s completion. Another benefit promised by Take-Two is that, following the deal, more of its sales will comprise recurring revenue, which investors favor. The company also said that recurring revenue from Zynga will help reduce volatility across its earnings reports.

In a statement, Take-Two Chief Executive Officer Strauss Zelnick said that “as we combine our complementary businesses and operate at a much larger scale, we believe that we will deliver significant value to both sets of stockholders, including $100 million of annual cost synergies within the first two years post-closing and at least $500 million of annual Net Bookings opportunities over time.” 

Take-Two plans to finance the acquisition with a combination of cash and stock. Take-Two shareholders will receive between 67.2% and 70.4% of the combined company’s stock, while Zynga shareholders are expected to receive the remaining 29.6% to 32.8% stake.

The deal is set to be completed in the first quarter of Take Two’s 2023 fiscal year, which ends June 30. A go-shop provision in the acquisition agreement gives Zynga 45 days to evaluate any competing acquisition offers that might be submitted from other bidders. 

Photo: Zynga