Take-Two Interactive (NASDAQ:TTWO) announced Monday that it plans to purchase mobile games publisher Zynga (NASDAQ:ZNGA), and the market is apparently bearish on the deal. Take-Two’s share price was down by roughly 14.5% as of 11:55 a.m. ET.
According to the company, it will pay $12.7 billion in cash and stock for Zynga. That works out to an acquisition price of $9.86 per share, 64% higher than Zynga’s price at the end of last week’s trading. Investors appear to think that’s too much of a premium.
With growth stocks — and video game stocks in particular — generally in the midst of a steep decline, investors may think this is not the right time for Take-Two Interactive to be making big acquisitions. Thus far, Monday is looking broadly like another day of steep pullbacks for growth-dependent technology stocks. The tech-heavy Nasdaq Composite index was down roughly 2% as of 11:55 a.m. ET, so the broader market’s momentum is likely also a significant factor in Take-Two’s stock slide.
The market is sending a clear signal that it thinks that Take-Two Interactive is overpaying for Zynga, but I think the deal stands a good chance of working out over the long term. Take-Two has been gearing up to make a bigger play in the mobile games category, and this acquisition should help the company significantly accelerate this initiative.
Zynga itself has been on a major acquisitions push over the last decade, and the company now has a formidable collection of development studios, as well as numerous established franchises including FarmVille, Words With Friends, and Toon Blast. By bringing the mobile-focused publisher into the fold, Take-Two Interactive should be able to make even better use of its own franchise catalog, accelerate its growth on smartphone and tablet platforms, and put itself in a better position to take advantage of emerging opportunities such as augmented reality and the metaverse.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.