The surprise announcement Monday morning that Take-Two Interactive Software was acquiring Zynga shocked people—not just because of its unexpected nature, but because of the high premium the publisher of Grand Theft Auto put on the company behind Words With Friends.
With an offer that represented a 64% premium to Zynga’s closing price on Friday, it would be the most expensive takeover in the video game industry’s history—50% more than Microsoft paid for ZeniMax and nearly six times what Facebook paid for Oculus. Investors balked, with Take-Two stock falling 13%, but CEO Strauss Zelnick says the price was a fair one—and that the merger makes sense.
“It really comes down to the expectations around their net bookings and cash flow,” he told Fast Company. “I’m not going to be critical of anyone else’s deals, but on that basis, this compares exceedingly favorably.”
Financials aside, bringing Zynga in-house will represent a big change in the way Take-Two does business. The company expects 50% of its combined fiscal 2023 net bookings to come from mobile games, a tectonic shift.
Some of that will come organically through Zynga’s existing titles, but Take-Two is eager to capitalize on its catalog of intellectual property, which includes Grand Theft Auto, the NBA 2K franchise, Red Dead Redemption, Bioshock, and Borderlands, many of which have not had mobile versions. GTA Online, the company’s cash cow, seems the obvious candidate, but Zelnick wasn’t willing to promise that yet.
“We have great intellectual properties,” he says. “We have done very little in mobile. I don’t think the expression in mobile is identical to the expression in console. I think it’s a different experience and possibly a different consumer and different geography. For example, we could bring a module to mobile, not necessarily the whole game.”
Zelnick wouldn’t specify which titles might get the mobile treatment. “I’m clearly not committing in the least to what any one of our labels will do,” he says. “I’m speaking very generally about bringing core Take-Two intellectual property to mobile. I think it’s distinctively possible that we’ll create joint ventures between our Zynga label and our other labels in the Take-Two family.”
The company hopes to leverage Zynga’s experience in free-to-play games to expand its business into new territories, including those in the Middle East, Asia, and Africa, says Zelnick.
And while the focus for many has been on bringing Take-Two games to mobile, the bridge could go both ways. Zelnick says Zynga is “very focused” on cross-platform opportunities, and it’s certainly possible that some of that company’s biggest games could find their way to console and PC.
Does that open the door for Zynga’s in-game advertising in Take-Two titles? That’s less likely.
“We like not to be rule-based, but it’s hard to see that happening,” says Zelnick.
Zynga’s history as a public company has been a rocky one. After going public in 2011, there was talk within a year that it might go private again. Between mid-2021 and October 2018, the stock never topped $4.50 per share. The 2016 installation of former EA executive Frank Gibeau as CEO marked a turning point, though. And by mid-pandemic, shares were as high as $12.
The company leaders have known each other for a long time, and recently, Take-Two approached Zynga about the acquisition.
“When Frank took over the company and changed its direction and changed its culture, it became of interest,” says Zelnick. “We obviously saw the great work Frank and his team did to build the company, both organically and through acquisitions. That’s when it became appealing. We’ve been fortunate to get to know Frank over a number of years, but the discussions only began with this situation relatively recently.”
The larger question now is whether Take-Two is the only company willing to pay big for Zynga. A 45-day go-shop provision in the agreement gives other bidders plenty of time to make a rival bid, and neither company would comment on whether other bidders might emerge or have been part of the process so far. (Tencent and Embracer Group lead the pack of potential rivals.)
In his conversation with Fast Company, though, Zelnick acknowledged the possibility—and seemed ready to fight if that occurs.
“[It] certainly could happen,” he says. “It’s part of the landscape of deals like these. We’ll address the situation if and when it occurs.”