By Nivedita Balu and Tiyashi Datta
(Reuters) -Take-Two Interactive said on Monday it would buy Zynga for $11.04 billion in a deal that will bring the smash-hit video game "Grand Theft Auto" and mobile-friendly "FarmVille" under one roof as demand for affordable on-the-go gaming surges.
The deal, one of the biggest in the sector, will create a gaming powerhouse spanning console, PC and mobile devices and comes as people increasingly gravitate toward smartphone games.
Take-Two (NASDAQ:TTWO), also known for adventure game "Red Dead Redemption", offered $9.86 per share for the deal, representing a 64% premium to the last closing price of Zynga shares. Including debt, the acquisition is worth $12.7 billion.
"It's a bombshell deal ... Zynga was on the list of potential M&A transactions for a long time in the video game business," said Serkan Toto, CEO of videogame consulting firm Kantan Games.
"Take-Two is looking at the industry map and says 'we have basically nothing here.' So, a lot of people have been have been expecting Take-Two to make a big deal in mobile to close the gap with competitors like Electronic Arts (NASDAQ:EA) for example."
Electronic Arts bought Glu Mobile for $2 billion last year. Zynga itself has made a string of acquisitions in the past two years, including Echtra and Chartboost.
The mobile gaming sector is expected to reach a market size of $116.4 billion by 2024, growing at a compound annual growth rate of 11.2% from 2019 to 2024, according to gaming market data firm Newzoo.
Zynga's aggressive dealmaking and Apple (NASDAQ:AAPL)'s move to allow iPhone users to opt out of being tracked by advertisers dented the company's shares, erasing 35% of their value in 2021. It has also missed Wall Street's profit targets in the past three quarters.
"It is a big price tag for a company that has not consistently produced profits or new blockbusters," said Erik Gordon, professor at Ross School of Business, University of Michigan.
Take-Two has $2.7 billion financing from J.P. Morgan and intends to fund the rest with cash and proceeds of a new debt issuance.
It expects about $100 million in annual cost savings within the first two years, and more than $500 million in net bookings over time when the deal closes in mid-2022.