Zynga (ZNGA) stock is soaring today following news that the company is set to be acquired by Take-Two Interactive (TTWO -1.97%) in a $12.7 billion cash-and-stock deal. The mobile-focused video game publisher's share price was up roughly 45% as of noon ET. Meanwhile, Take-Two stock was down roughly 14%, suggesting that investors are worried the company is overpaying in the deal.
Following completion of the pending buyout, Zynga shareholders are set to receive $3.50 in cash and $6.36 in Take-Two stock for each share of Zynga stock they own. The combined $9.86 per share buyout price represents a 64% premium from the company's closing share price on Jan. 7. However, the planned buyout price is also roughly 20% below the 52-week high of $12.32 per share that Zynga stock hit last February.
After soaring for much of 2020 and the beginning of 2021, Zynga's share price had retreated following a diminished growth outlook for its advertising-focused, ultra-casual games and a broader pullback for video game stocks. With the mobile publisher's valuation sliding in recent months, Take-Two Interactive likely saw an opportunity to swoop in and acquire development and publishing resources that can significantly improve its standing in the mobile market.
Zynga stock currently trades at roughly $8.69 per share, which suggests roughly 13.5% additional upside based on the stated buyout price. The acquisition is on track to be completed by June 30, but it's still subject to gaining approval from Take-Two and Zynga shareholders and meeting necessary regulatory conditions.
The merger has unanimous approval from each company's board of directors, but the deal also includes a provision that allows Zynga to seek out and evaluate alternative offers through Feb. 24. This explains why Zynga still trades at a significant discount to the pending acquisition price, but the most likely outcome is that the merger with Take-Two will be completed in the first half of this year.