‘Grand Theft Auto’ Owner Take-Two Acquires Zynga for $12.7 Billion in Video Game Mega-Merger

Take-Two Interactive and Zynga, two prominent video game publishers in interactive and mobile gaming, Jan. 10 announced that they have entered into a merger agreement, under which Take-Two will acquire all of the outstanding shares of Zynga in a cash and stock transaction valued at about $12.7 billion.

The merger unifies two global leaders in the interactive entertainment business and makes Take-Two one of the largest mobile game publishers in the industry, with $6.1 billion in pro-forma revenue for the trailing 12-month period ended Sept. 30, 2021.

The merger is expected to create $100 million in annual cost synergies within the first two years post-closing, and at least $500 million of annual
net bookings opportunities over time, according to Take-Two chairman/CEO Strauss Zelnick.

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“[This deal] significantly diversifies our business and establishes our leadership position in mobile, the fastest growing segment of the interactive entertainment industry,” Zelnick said in a statement.

Under the terms of the agreement, Zynga stockholders will receive $3.50 in cash per share, and $6.361 in shares of Take-Two common stock for each share of Zynga outstanding common stock. The purchase price represents a premium of 64% to Zynga’s closing share price on Jan. 7.

“With this transaction, we begin a new journey, which will allow us to create even better games, reach larger audiences and achieve significant growth as a leader in the next era of gaming,” said Zynga CEO Frank Gibeau.

Indeed, both companies have created and expanded some of the biggest-selling game franchises. Take-Two properties include Grand Theft Auto, Red Dead Redemption, Midnight Club, NBA 2K, BioShock, Borderlands, Civilization, Mafia, and Kerbal Space Program. Zynga’s portfolio includes CSR Racing, Empires & Puzzles, FarmVille, Golf Rival, Hair Challenge, Harry Potter: Puzzles & Spells, High Heels!, Merge Dragons!, Toon Blast, Toy Blast, Words With Friends and Zynga Poker.

“This strategic combination brings together our best-in-class console and PC franchises … that has a rich history of innovation and creativity,” Zelnick said. “Zynga also has a highly talented and deeply experienced team, and we look forward to welcoming them into the Take-Two family in the coming months.”

Analyst Calls Appeals Court’s Gambling Decision ‘Dangerous Precedent’ for Online Video Games

Last week, the Ninth Circuit Court of Appeals in San Francisco overturned a lower court ruling that found free-to-play online video games don’t constitute gambling under Washington state law.

Specifically, the appeals court ruled in favor of the plaintiff, who had spent $1,000 on “coins” on a virtual casino slot game to extend play. Players are provided a number of free coins daily but can purchase additional coins to extend play within a 24-hour period.

That payment option, according to the appeals court, held “intrinsic value,” and constituted gambling under state law.

To Michael Pachter, media analyst at Wedbush Securities in Los Angeles, the decision has ramifications for free-to-play online video games that allow players additional turns for a fee.

Activision’s King Casino generated nearly $2 billion in revenue in 2017, including a $1 billion in the U.S. Most of the revenue coming from the purchase of “boosters” in games, which accelerate the solving of the particular game or extending play.

Zynga generated $850 million in revenue, with an estimated $400 million coming from the purchase of time-saving options.

“Should the Circuit Court’s decision be applied in other states, these companies may face a series of lawsuits,” Pachter wrote in an April 2 note.

The analyst expects the latest decision to be appealed by a “more rationale” court that does not render value on virtual video game pieces.

“However, until that happens, there is some risk that Activision and Zynga will see increased legal risk to their ongoing operations in Washington state,” Pachter wrote. “Should other states decide to cite the [lower court] decision as precedent, we may see an uptick in legal activity elsewhere.”