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4 Big Wins for Take-Two’s Zynga Acquisition | Smart Change: Personal Finances

With Zynga (NASDAQ: ZNGA) to be acquired by take two (NASDAQ: TWO), investors should consider whether they want to own a combined company. In this clip from “3 Minute Stocks Updates” on Motley Fool live, recorded on February 16Motley Fool contributor Toby Bordelon explains why it’s important for investors to be proactive in their decision-making before closing the deal.

Toby Bordelon: Zynga. Quick update on fourth quarter results. Revenue up 13% to $695 million. Bookings up 4% to $727 million, no wonder bookings are slowing relative to revenue growth. Again, that’s not what you want to see there. Reservations, again, represent orders they have, but they haven’t earned that revenue yet because there may be a subscription term associated with that. They earn that over time. Revenue costs are 37% of revenue versus 41% of revenue last year, which is nice to see these expenses drop. They are still losing money, a net loss of $7 million. But you know what, guys? That revenue is largely irrelevant right now because Zynga, like its game company, Activision (NASDAQ: ATVI), is being acquired. Take-Two, the other major game company, acquires Zynga. Here are the terms of the agreement announced on January 10. You see the value is just under $10 per share, $3.50 in cash, $6.36 in stock. It might move a bit. The actual shares you get are based on how stock prices move and change through the close. That’s pretty much where it’s going to be. The deal values ​​Zynga at approximately $12.7 billion in enterprise value. This is a 64% premium for Zynga shares. It’s amazing, but it’s a very nice bonus for you if you’re a Zynga shareholder. They expect to close by the end of June. Take-Two already has $2.7 billion in committed funding that they will use for this cash portion. They will finance the rest from operating cash, thereby generating cash. Zynga’s team, including the CEO, will lead the two companies’ combined mobile studios. Now, when this deal was announced, I thought Take-Two was a lot like Activation Blizzard. This puts them in this category of a very strong and solid mobile component. A week later, Activision was acquired by Microsoft (NASDAQ: MSFT), so it happens. But that, I think, makes Take-Two a very strong competitor in the market. You examine some of the benefits of the transaction. We are talking about approximately $100 million in synergies over the next two years. You never want to hear about synergies if you work for the company, but there you go. Over 50% of combined bookings expected from mobile. This is a big mobile game for them in fiscal year 2023. The overall market, the mobile game market in 2021, $136 billion in estimated gross reservations. You can see the possibility there. You can see the market potential they are looking for. They say they expect to reach around $500 million in annual net bookings over time. It will be great from the mobile division there, but they don’t tell us the exact schedule in time. There is a go-shop that expires on February 24. This means Zynga management has the opportunity to get a better deal. I haven’t heard anything about it and nothing has materialized. I did not expect that. Again, 64% premium. I’m not sure anyone else will materialize and be willing to pay more than that. If you own Zynga stock, you have to remember that two-thirds of that transaction is condensing into stock. Make an assessment. Before closing the deal, do an appraisal. Would you like to become the owner of a combined company in the future? Take a look at this. Take a decision. Don’t let that happen and then try to decide after the fact. You want to be proactive about this. That’s the only suggestion I would make. Hey, you get a nice bonus here. Again, I want to emphasize that. I think you’re probably pretty happy if you’re a shareholder of Zynga.

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Toby Bordelon owns Activision Blizzard and Microsoft and has the following options: Short March 2022 $165 puts on Take-Two Interactive. The Motley Fool owns and recommends Activision Blizzard, Microsoft, Take-Two Interactive, and Zynga. The Motley Fool recommends the following options: Long Calls January 2023 at $115 on Take-Two Interactive. The Motley Fool has a disclosure policy.