Zynga stocks skyrocketed by over 40% after news broke that it was acquired by Take-Two Interactive. If you have this company in your stock market portfolio, should you consider selling out your position?
Zynga is a good company. However, its stock price has been falling. Some predicted that it would soon be acquired so that it’ll get more exposure. A lot of bigger gaming companies have been acquiring smaller ones.
For instance, Microsoft acquired a bunch of game studios, Tencent took in Supercell, and Electronic Arts acquired Blue Mobile. Take-Two Interactive’s decision to acquire Zynga triggered a whopping 40% increase in the latter’s stock price. The deal is expected to close for a massive $13 billion. When this happens, it’ll be the largest acquisition in the gaming industry.
Take-Two will pay for the acquisition using stock and cash. It means, existing Zynga stakeholders will get $6.36 in stock and $3.50 in cash for every share of Zynga. The deal may close during the mid-year if the deal gets the green light from the shareholders and regulators.
Because of this, Zynga’s stock price now stands at $9.86 a share. Despite the increase, Zynga’s stocks remain in the bottom half of the company’s 52-week range. It means Take-Two Interactive is acquiring a company at a much cheaper price compared to how much it was trading last year, which was $12 a share.
The drop in its stock price was fuelled by investors’ fear that the gaming industry will slow down as the world recovers from the current health crisis and lockdowns start to get lifted. As this happens, people are spending less time on their phones and more time outdoors.
It’s possible that Take-Two Interactive has taken advantage of the decrease in Zynga’s stock price and they’re getting an excellent deal, even though Wall Street thinks otherwise.
For investors who have been following Take-Two Interactive, they know that the company has always maintained a long-term mindset. Among the company’s popular games include Grand Theft Auto and 2K. But Take-Two always takes time to release newer versions so that they can create the best version and sell it for the longest time possible. Take, for example, GTA 5. It was released almost a decade ago but the company continues to make a lot of money from it.
The addition of Zynga, which releases more titles regularly, will help stabilize Take-Two’s financials once they get more diversified. Zynga can also help Take-Two by developing mobile versions of their existing larger games.
Now that the stock price of Zynga has increased, should you sell your position? For now, the answer is no because Zynga still has the potential to do a lot of great things within the gaming industry.
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