In considering how to vote on the proposals to be considered and voted on at the Take-Two special meeting or the Zynga special meeting, you are urged to carefully consider all of the information contained or incorporated by reference in this joint proxy statement/prospectus. See “Where You Can Find More Information.” You should also read and consider the risks associated with each of the businesses of Take-Two and Zynga because those risks will affect the combined company. The risks associated with the business of Take-Two can be found in Take-Two’s Exchange Act reports, including Take-Two’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021 and Take-Two’s Quarterly Reports on Form 10-Q for the quarterly periods ended June 30, 2021, September 30, 2021, and December 31, 2021 which are incorporated by reference into this joint proxy statement/prospectus. The risks associated with the business of Zynga can be found in Zynga’s Exchange Act reports, including Zynga’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which are incorporated by reference into this joint proxy statement/prospectus. In addition, you are urged to carefully consider the following material risks relating to the combination and the businesses of Take-Two, Zynga and the combined company.
Risks Relating to the Combination
Because the exchange ratio is not fixed and will be adjusted based on the price of Take-Two common stock prior to the effective time of the combination, the number of shares of Take-Two common stock that Zynga stockholders will receive as consideration in the combination and market value of the consideration payable to Zynga stockholders in the combination is uncertain.
At the effective time, each share of Zynga common stock that is outstanding immediately prior to the effective time (other than shares of Zynga common stock held, directly or indirectly, by Zynga or Take-Two, any of their respective wholly owned subsidiaries, or held in Zynga’s treasury), will be converted into the right to (i) a number of shares of Take-Two common stock equal to the exchange ratio (as described below) with a cash payment in lieu of fractional shares of Take-Two common stock resulting from such calculation and (ii) $3.50 in cash, without interest and less any applicable withholding taxes. The “exchange ratio” is subject to a two-way collar mechanism and will be determined as follows: (i) if the Take-Two common stock price (as defined below) is an amount greater than $181.88, then the exchange ratio will be 0.0350; (ii) if the Take-Two common stock price is an amount greater than or equal to $156.50 but less than or equal to $181.88, then the exchange ratio will be an amount equal to the quotient (rounded to five decimal places) obtained by dividing (x) $6.36 by (y) the Take-Two common stock price; and (iii) if the Take-Two common stock price is less than $156.50, then the exchange ratio will be 0.0406. The “Take-Two common stock price” will be the volume-weighted average sales price per share of Take-Two common stock on the Nasdaq Global Select Market for the consecutive period beginning at 9:30 a.m. New York time on the twenty-third trading day immediately preceding the closing date of the combination and concluding at 4:00 p.m. New York time on the third trading day immediately preceding such closing date. Because the exchange ratio is not fixed within the two-way collar and will be adjusted for changes in the market price of Take-Two common stock prior to the effective time of the combination if the Take-Two common stock price is an amount equal to or between $156.50 and $181.88, the number of shares of Take-Two common stock that Zynga stockholders will receive as consideration in the combination is not fixed and may change. In addition, the market value of the consideration payable to Zynga stockholders in the combination will fluctuate with the market price of Take-Two common stock if the Take-Two common stock price is an amount less than $156.50 or greater than $181.88. The market prices of Take-Two common stock and Zynga common stock have fluctuated prior to and after the date of the announcement of the merger agreement and will continue to fluctuate from the date of this joint proxy statement/prospectus to the date of the Take-Two special meeting and the Zynga special meeting, and through the date the combination is completed.
Because the exchange ratio will depend on the market price of Take-Two common stock during the period beginning at 9:30 a.m. New York time on the twenty-third trading day immediately preceding the closing date of the combination and concluding at 4:00 p.m. New York time on the third trading day immediately preceding such
closing date, Zynga stockholders will not know or be able to determine at the time of the Zynga special meeting the number of shares of Take-Two common stock that Zynga stockholders will receive as consideration in the combination or the market value of the consideration payable to Zynga stockholders in the combination. Similarly, Take-Two stockholders will not know or be able to determine at the time of the Take-Two special meeting the number of shares of Take-Two common stock that Zynga stockholders will receive as consideration in the combination or the market value of the shares of Take-Two common stock to be issued pursuant to the merger agreement compared to the market value of the shares of Zynga common stock that are being exchanged in the combination.
It is impossible to accurately predict the market price of Take-Two common stock at the completion of the combination or during the period over which the Take-Two common stock price is calculated and, therefore, impossible to accurately predict the number or value of the shares of Take-Two common stock that Zynga stockholders will receive in the combination. Stock price changes may result from a variety of factors, including, among others, general market and economic conditions, changes in Take-Two’s or Zynga’s respective businesses, operations and prospects, the effect of uncertainties related to the COVID-19 pandemic on U.S. and global markets, Take-Two’s or Zynga’s respective business, operations, revenue, cash flow, operating expenses, hiring, demand for their respective solutions, sales cycles, customer retention and their respective customers’ business and industries, market assessments of the likelihood that the combination will be completed, interest rates and other factors generally affecting the respective prices of Take-Two common stock and Zynga common stock, and the timing of the combination and receipt of required regulatory approvals.
Many of these factors are beyond the control of Take-Two and Zynga, and neither Take-Two nor Zynga is permitted to terminate the merger agreement solely due to a decline in the market price of the common stock of the other party. You are urged to obtain current market quotations for Take-Two common stock and Zynga common stock in determining whether to vote in favor of the Take-Two share issuance proposal and the Take-Two charter amendment proposal, in the case of Take-Two stockholders, or the Zynga merger proposal, in the case of Zynga stockholders.
The market price of Take-Two common stock will continue to fluctuate after the combination.
Upon completion of the combination, Zynga stockholders will become holders of Take-Two common stock. The market price of the Take-Two common stock will continue to fluctuate, potentially significantly, following completion of the combination, including for the reasons described above. As a result, former Zynga stockholders could lose some or all of the value of their investment in Take-Two common stock. In addition, any significant price or volume fluctuations in the stock market generally could have a material adverse effect on the market for, or liquidity of, the Take-Two common stock received in the combination, regardless of the combined company’s actual operating performance.
The combination may not be completed and the merger agreement may be terminated in accordance with its terms.
The combination is subject to a number of conditions that must be satisfied, including the receipt of certain regulatory approvals and the approval by Take-Two stockholders of the Take-Two share issuance proposal, the Take-Two charter amendment proposal, and approval by Zynga stockholders of the Zynga merger proposal, or waived (to the extent permitted), in each case prior to the completion of the combination. These conditions are described in the section titled “The Merger Agreement—Conditions to Completion of the Combination.” These conditions to the completion of the combination, some of which are beyond the control of Take-Two and Zynga, may not be satisfied or waived in a timely manner or at all, and, accordingly, the combination may be delayed or not completed.
Additionally, either Take-Two or Zynga may terminate the merger agreement under certain circumstances, subject to the payment of a “termination fee” in certain cases, including if the merger agreement is terminated by
either Take-Two or Zynga as a result of an adverse change in the recommendation of the other party’s board of directors. In such circumstances, Take-Two is required to pay to Zynga (in the case of a termination by Zynga), or Zynga is required to pay to Take-Two (in the case of a termination by Take-Two), a termination fee of $550 million. In addition, Zynga is required to pay to Take-Two a termination fee of $550 million if Zynga terminates the merger agreement to enter into a definitive agreement for an alternative business combination transaction that constitutes a “superior proposal,” unless Zynga had terminated the merger agreement during the go-shop period, in which case Zynga would have been required to pay to Take-Two a lower termination fee of $400 million. See the sections titled “The Merger Agreement—Termination of the Merger Agreement” and “The Merger Agreement—Termination Fees and Expenses; Liability for Breach” for a more complete discussion of the circumstances under which the merger agreement could be terminated and when a termination fee may be payable by Take-Two or Zynga.
Failure to complete the combination could negatively impact the future business and financial results of Take-Two and Zynga and the trading prices of the Take-Two common stock or Zynga common stock.
If the combination is not completed for any reason, including because Take-Two stockholders fail to approve the Take-Two share issuance proposal or the Take-Two charter amendment proposal, or because Zynga stockholders fail to approve the Zynga merger proposal, the ongoing businesses of Take-Two and Zynga may be adversely affected and, without realizing any of the expected benefits of having completed the combination, Take-Two and Zynga would be subject to a number of risks, including the following:
| • | each company may experience negative reactions from the financial markets, including negative impacts on its stock price; |
| • | each company may experience negative reactions from its customers, partners, suppliers and employees; |
| • | each company will be required to pay its respective costs relating to the combination, such as financial advisory, legal, accounting costs and associated fees and expenses, whether or not the combination is completed; |
| • | there may be disruptions to each company’s respective business resulting from the announcement and pendency of the combination, and any adverse changes in their relationships with their respective customers, partners, suppliers, other business partners and employees may continue or intensify; and |
| • | each company will have committed substantial time and resources to matters relating to the combination (including integration planning) which would otherwise have been devoted to day-to-day operations and other opportunities that may have been beneficial to either company as an independent company. |
The market price for shares of Take-Two common stock may be affected by factors different from, or in addition to, those that historically have affected or currently affect the market price of shares of Zynga common stock.
Upon completion of the combination, Zynga stockholders will receive shares of Take-Two common stock and will accordingly become Take-Two stockholders. Take-Two’s business differs from that of Zynga, and Take-Two’s results of operations and stock price may be adversely affected by factors different from those that historically have affected or currently affect Zynga’s results of operations and stock price. Following the completion of the combination, Zynga will be part of a larger company, so decisions affecting Zynga may be made in respect of the larger combined business as a whole rather than the Zynga business individually. For a discussion of the businesses of each of Take-Two and Zynga and some important factors to consider in connection with those businesses, see the section titled “The Parties to the Combination” and the other information contained or incorporated in this joint proxy statement/prospectus. See the section titled “Where You Can Find More Information.”
The share issuance may cause the market price of Take-Two common stock to decline.
Based on 1,137,275,149 shares of Zynga common stock issued and outstanding as of March 28, 2022, the latest practicable date prior to the date of this joint proxy statement/prospectus, and the maximum exchange ratio permitted under the merger agreement of 0.04064, it is expected that Take-Two will issue as much as 46.219 million shares of Take-Two common stock to Zynga stockholders pursuant to the merger agreement. Former Zynga stockholders may decide not to hold the shares of Take-Two common stock that they will receive in the combination, and Take-Two stockholders may decide to reduce their investment in Take-Two as a result of the changes to Take-Two’s investment profile as a result of the combination. Both the issuance of this amount of new shares in the combination and any subsequent sales of these shares may cause the market price of Take-Two common stock to decline.
Zynga stockholders who receive shares of Take-Two common stock in the combination will have rights as Take-Two stockholders that differ from their current rights as Zynga stockholders.
Upon completion of the combination, Zynga stockholders will no longer be stockholders of Zynga and will instead become stockholders of Take-Two. As Take-Two and Zynga are both Delaware corporations, the rights of Take-Two stockholders and Zynga stockholders are not materially different. However, there are certain differences in the rights of Take-Two stockholders under the Take-Two charter and Take-Two bylaws, and of Zynga stockholders under the Zynga charter and the Zynga bylaws. See the section titled “Comparison of Stockholders’ Rights” for a discussion of these rights.
After the combination, Zynga stockholders will have a significantly lower ownership and voting interest in Take-Two than they currently have in Zynga and will exercise less influence over management and policies of the combined company.
Based on the number of shares of Take-Two common stock and Zynga common stock outstanding on March 28, 2022, the latest practicable date prior to the date of this joint proxy statement/prospectus, upon completion of the combination (and the expected settlement of Zynga’s two outstanding series of convertible notes due 2024 and 2026), former Zynga stockholders (including former holders of the Zynga convertible notes) are expected to own approximately 31.8% of the outstanding shares of Take-Two common stock and the current Take-Two stockholders are expected to own approximately 68.2% of the outstanding shares of Take-Two common stock. Consequently, former Zynga stockholders will have less influence over the management and policies of the combined company than they currently have over the management and policies of Zynga. Pursuant to the merger agreement, however, on or prior to the effective time, Take-Two will appoint two members of the Zynga board of directors, selected by Zynga and approved by Take-Two prior to the effective time, to the Take-Two of board of directors.
Until the completion of the combination or the termination of the merger agreement pursuant to its terms, Take-Two and Zynga are each prohibited from entering into certain transactions and taking certain actions that might otherwise be beneficial to Take-Two, Zynga and/or their respective stockholders.
From and after the date of the merger agreement and prior to the completion of the combination or the termination of the merger agreement pursuant to its terms, the merger agreement restricts Take-Two and Zynga from taking specified actions without the consent of the other party and requires that the businesses of Take-Two, Zynga and their respective subsidiaries be conducted in the ordinary course. These restrictions may prevent Take-Two or Zynga, as applicable, from taking actions during the pendency of the combination that would have been beneficial. Adverse effects arising from these restrictions during the pendency of the combination could be exacerbated by any delays in the completion of the combination or termination of the merger agreement. See the section titled “The Merger Agreement—Conduct of Business.”
Obtaining required approvals and satisfying closing conditions may prevent or delay completion of the combination.
The combination is subject to a number of conditions to closing as specified in the merger agreement. These closing conditions include, among others, the effectiveness of the registration statement on Form S-4 of which
this joint proxy statement/prospectus forms a part registering the issuance of shares of Take-Two common stock to Zynga stockholders in connection with the combination and the absence of any stop order or proceedings by the SEC with respect thereto; the expiration or earlier termination of any applicable waiting period (and any extension thereof) under the HSR Act; consent, waiver, authorization or approval of the applicable antitrust regulatory authority in certain specified non-U.S. jurisdictions; approval for listing on Nasdaq of the shares of Take-Two common stock to be issued in connection with the combination; and the absence of governmental restraints or prohibitions preventing the consummation of the combination. The obligation of each of Take-Two and Zynga to complete the combination is also conditioned on, among other things, the accuracy of the representations and warranties made by the other party on the date of the merger agreement and on the closing date (subject to certain materiality and material adverse effect qualifiers), and the performance by the other party in all material respects of its obligations under the merger agreement. No assurance can be given that the required stockholder approvals and governmental and regulatory consents and approvals will be obtained or that the required conditions to closing will be satisfied, and, if all required consents and approvals are obtained and the required conditions are satisfied, no assurance can be given as to the terms, conditions and timing of such consents and approvals. Any delay in completing the combination could cause the combined company not to realize, or to be delayed in realizing, some or all of the benefits that Take-Two and Zynga expect to achieve if the combination is successfully completed within its expected time frame. For a more complete summary of the conditions that must be satisfied or waived prior to completion of the combination, see the section titled “The Merger Agreement—Conditions to Completion of the Combination.”
Failure to attract, motivate and retain executives and other key employees could diminish the anticipated benefits of the combination.
The success of the combination will depend in part on the combined company’s ability to retain the talents and dedication of the professionals currently employed by Take-Two and Zynga. It is possible that these employees may decide not to remain with Take-Two or Zynga, as applicable, while the combination is pending, or with the combined company. If key employees of either company terminate their employment, or if an insufficient number of employees are retained to maintain effective operations, the combined company’s business activities may be adversely affected and management’s attention may be diverted from successfully integrating Take-Two and Zynga to hiring suitable replacements, all of which may cause the combined company’s business to suffer. In addition, Take-Two and Zynga may not be able to locate suitable replacements for any key employees that leave either company or offer employment to potential replacements on reasonable terms. Moreover, there could be disruptions to or distractions for the workforce and management, including disruptions associated with integrating employees into the combined company. No assurance can be given that the combined company will be able to attract or retain key employees of Take-Two and Zynga to the same extent that those companies have been able to attract or retain their own employees in the past.
The combination, and uncertainty regarding the combination, may cause business partners, or vendors to delay or defer decisions concerning Take-Two or Zynga and adversely affect each company’s ability to effectively manage its respective business, which could adversely affect each company’s business, operating results and financial position and, following the completion of the combination, the combined company’s.
The combination will happen only if the stated conditions are met, including the approval of the Take-Two share issuance proposal, the approval of the Take-Two charter amendment proposal, the approval of the Zynga merger proposal and the receipt of required regulatory approvals, among other conditions. Many of the conditions are beyond the control of Take-Two and Zynga, and both parties also have certain rights to terminate the merger
agreement. Accordingly, there may be uncertainty regarding the completion of the combination. This uncertainty may cause existing or business partners, advertisers and vendors to:
| • | delay or defer other decisions concerning Take-Two, Zynga or the combined company, including entering into contracts with Take-Two or Zynga or making other decisions concerning Take-Two or Zynga or seek to change or cancel existing business relationships with Take-Two or Zynga; or |
| • | otherwise seek to change the terms on which they do business with Take-Two, Zynga or the combined company. |
Any such disruptions such as delays or deferrals of those decisions or changes in existing agreements could adversely affect the respective business, operating results and financial position of Take-Two and Zynga, whether the combination is ultimately completed, and following the completion of the combination, the combined company, including an adverse effect on the combined company’s ability to realize the anticipated synergies and other benefits of the combination. The risk, and adverse effect, of any such disruptions could be exacerbated by a delay in completion of the combination or termination of the merger agreement.
Whether or not the combination is completed, the announcement and pendency of the combination could cause disruptions in the businesses of Take-Two and Zynga, which could have an adverse effect on their respective businesses and financial results.
Whether or not the combination is completed, the announcement and pendency of the combination could cause disruptions in the businesses of Take-Two and Zynga, including by diverting the attention of Take-Two and Zynga’s respective management and employee teams, such as those involved in day-to-day operations and sales, toward the completion of the combination. In addition, Take-Two and Zynga have each diverted significant management resources in an effort to complete the combination and are each subject to restrictions contained in the merger agreement on the conduct of their respective businesses. If the combination is not completed, Take-Two and Zynga will have incurred significant costs, including the diversion of management resources, for which they will have received little or no benefit.
Zynga directors and executive officers have interests and arrangements that may be different from, or in addition to, those of Zynga stockholders generally.
When considering the recommendations of the Zynga board of directors on how to vote on the proposals described in this joint proxy statement/prospectus, Zynga stockholders should be aware that Zynga directors and executive officers may have interests in the combination that are different from, or in addition to, those of Zynga stockholders generally. These interests include the treatment in the combination of outstanding equity, equity-based and incentive awards, severance arrangements, other compensation and benefit arrangements, Take-Two’s agreement to add two of Zynga’s current directors to the Take-Two board of directors as designated by Zynga and approved by Take-Two, and the right to continued indemnification of former Zynga directors and officers by the combined company. The Zynga board of directors was aware of and considered these interests when it determined that the combination was fair to, and in the best interests of, Zynga and its stockholders, approved and declared advisable the merger agreement and the consummation of the transactions contemplated thereby, including the combination, and recommended that Zynga stockholders adopt the merger agreement. The interests of Zynga directors and executive officers are described in more detail in the section titled “Interests of Zynga Directors and Executive Officers in the Combination.”
The merger agreement contains provisions that could discourage a potential competing acquirer that might be willing to pay more to acquire or merge with either Take-Two or Zynga.
The merger agreement contains “no shop” provisions that restrict the ability of Take-Two and Zynga to, among other things (each as described in the sections titled “The Merger Agreement—Go-Shop Period; Restrictions on Solicitations of Other Offers—Zynga No-Shop Period” and “The Merger Agreement— Go-Shop Period;
Restrictions on Solicitations of Other Offers—Take-Two No-Shop Period”), subject to limited exceptions set forth in the merger agreement:
| • | in the case of Zynga: (i) solicit, initiate, propose, induce the making or submission of, or knowingly encourage or facilitate in any way any offer, inquiry or proposal that constitutes, or could reasonably be expected to lead to, a Zynga alternative acquisition proposal; (ii) continue, enter into, engage in or otherwise participate in any discussions or negotiations with any person regarding any Zynga alternative acquisition proposal; (iii) grant any waiver, amendment or release of any third party under any standstill or confidentiality provision in connection with clauses (i) and (ii); or (iv) agree or resolve to take, or take, any of the foregoing prohibited actions; and |
| • | in the case of Take-Two: (i) solicit, initiate, propose, induce the making or submission of, or knowingly encourage or facilitate in any way any offer, inquiry or proposal that constitutes, or could reasonably be expected to lead to, a Take-Two alternative acquisition proposal; (ii) continue, enter into, engage in or otherwise participate in any discussions or negotiations with any person regarding any Take-Two alternative acquisition proposal; (iii) grant any waiver, amendment or release of any third party under any standstill or confidentiality provision in connection with clauses (i) and (ii); or (iv) agree or resolve to take, or take, any of the foregoing prohibited actions. |
Furthermore, there are only limited exceptions to the requirement under the merger agreement that neither the Take-Two board of directors nor the Zynga board of directors withdraw or modify the Take-Two board recommendation or the Zynga board recommendation, as applicable (each as defined in the section titled “The Merger Agreement—Changes in Board Recommendations”). Although the Take-Two board of directors or Zynga board of directors is permitted to effect a change of recommendation, after complying with certain procedures set forth in the merger agreement, in response to certain superior offers or to certain intervening events (if the applicable board of directors determines in good faith, after having taken into account the advice of outside legal counsel, that a failure to do so would be inconsistent with its fiduciary duties under applicable law), such change of recommendation would entitle the other party to terminate the merger agreement and receive a termination fee from the party making a change of recommendation. See the sections titled “The Merger Agreement—Termination of the Merger Agreement” and “The Merger Agreement—Termination Fees and Expenses; Liability for Breach.”
These provisions could discourage a potential competing acquirer from considering or proposing an acquisition or merger, even if it were prepared to pay consideration with a higher value than that implied by the merger consideration in the combination, or might result in a potential competing acquirer proposing to pay a lower per share price than it might otherwise have proposed to pay because of the added expense of the termination fee.
The combination will involve substantial costs.
Take-Two and Zynga have incurred and expect to incur non-recurring costs associated with combining the operations of the two companies, as well as transaction fees and other costs related to the combination. Such costs include, among others, filing and registration fees with the SEC, printing and mailing costs associated with this joint proxy/registration statement, and legal, accounting, investment banking, consulting, public relations and proxy solicitation fees. Some of these costs are payable by Take-Two or Zynga regardless of whether the combination is completed.
The combined company will also incur restructuring and integration costs in connection with the combination. There are processes, policies, procedures, operations, technologies and systems that must be integrated in connection with the combination and the integration of Zynga’s business. Although Take-Two expects that the elimination of duplicative costs, strategic benefits and additional income, as well as the realization of other efficiencies related to the integration of the businesses, may offset incremental transaction, combination-related and restructuring costs over time, any net benefit may not be achieved in the near term or at all. While Take-Two
has assumed that certain expenses would be incurred in connection with the combination and the other transactions contemplated by the merger agreement, there are many factors beyond Take-Two’s control that could affect the total amount or the timing of the integration and implementation expenses.
Take-Two stockholders will not be entitled to appraisal rights in the combination.
Appraisal rights are statutory rights that, if applicable under law, enable stockholders of a corporation to dissent from certain extraordinary transactions, such as a merger in certain circumstances, and to demand that such corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to such stockholders in connection with the extraordinary transaction. Under the DGCL, stockholders generally do not have appraisal rights if the shares of stock they hold are either listed on a national securities exchange or held of record by more than 2,000 holders. Notwithstanding the foregoing, appraisal rights are available if stockholders are required by the terms of the merger agreement to accept for their shares anything other than (a) shares of stock of the surviving corporation, (b) shares of stock of another corporation that will either be listed on a national securities exchange or held of record by more than 2,000 holders, (c) cash in lieu of fractional shares or (d) any combination of the foregoing.
Because the combination consists of Merger Sub 1 merging with and into Zynga, with Zynga immediately thereafter merging with and into Merger Sub 2, holders of Take-Two common stock will continue to hold their Take-Two shares following completion of the combination and are not entitled to appraisal rights in connection with the combination.
Because Zynga stockholders are required by the terms of the merger agreement to accept cash consideration for their shares of Zynga common stock, holders of Zynga common stock are entitled to appraisal rights in connection with the combination. See the section titled “Appraisal Rights.”
Lawsuits filed against Take-Two, Zynga, and members of their respective boards of directors, challenging the combination, and an adverse ruling in any such lawsuit may prevent the combination from becoming effective or from becoming effective within the expected time frame.
Transactions such as the combination are frequently subject to litigation or other legal proceedings, including actions alleging that the Take-Two board of directors or Zynga board of directors breached their respective fiduciary duties to their stockholders by entering into the merger agreement, by failing to obtain a greater value in the transaction for their stockholders or otherwise. Take-Two, Zynga, and members of their respective boards of directors currently are and/or may in the future be parties, among others, to various claims and litigation related to the combination. See the section titled “The Merger Agreement - Litigation Relating to the Combination.” Neither Take-Two nor Zynga can provide assurance that additional litigation or other legal proceedings will not be brought. Take-Two and Zynga will defend against the lawsuits filed, but might not be successful in doing so. An adverse outcome in such matters, as well as the costs and efforts of a defense even if successful, could have a material adverse effect on the business, results of operation or financial position of Take-Two, Zynga or the combined company, including through the possible diversion of either company’s resources or distraction of key personnel.
Furthermore, one of the conditions to the completion of the combination is that no injunction by any governmental body of competent jurisdiction will be in effect that prevents the consummation of the combination. As such, if any of the plaintiffs are successful in obtaining an injunction preventing the consummation of the combination, that injunction may prevent the combination from becoming effective or from becoming effective within the expected time frame.
If the combination does not qualify as a reorganization there may be adverse tax consequences.
The parties intend that the combination will be treated as a reorganization within the meaning of Section 368(a) of the Code. If the combination were to fail to qualify as a reorganization, U.S. holders of Zynga common stock generally would recognize gain or loss, as applicable, equal to the difference between (i) the sum of the fair
market value of the Take-Two common stock and cash consideration (including in lieu of fractional shares) received by such holder in the combination; and (ii) such holder’s adjusted tax basis in its Zynga common stock. See the section titled “U.S. Federal Income Tax Consequences of the Combination.”
Risks Relating to the Combined Company
Combining the businesses of Take-Two and Zynga may be more difficult, costly or time-consuming than expected and the combined company may fail to realize the anticipated benefits of the combination, which may adversely affect the combined company’s business results and negatively affect the value of the combined company’s common stock.
The success of the combination will depend on, among other things, Take-Two’s ability to realize the anticipated benefits and operational scale efficiencies from combining the businesses of Take-Two and Zynga. This success will depend largely on Take-Two’s ability to successfully integrate the business of Zynga. If Take-Two is not able to successfully integrate Zynga’s business within the anticipated time frame, or at all, the anticipated operational scale efficiencies and other benefits of the combination may not be realized fully, or at all, or may take longer to realize than expected.
An inability to realize the full extent of the anticipated benefits of the combination and the other transactions contemplated by the merger agreement, as well as any delays encountered in the integration process, could have an adverse effect upon the revenues, level of expenses and operating results of the combined company, which may adversely affect the value of the common stock of the combined company.
Take-Two and Zynga have operated and, until the completion of the merger, will continue to operate independently. There can be no assurances that their businesses can be integrated successfully. It is possible that the integration process could result in the loss of key Take-Two or Zynga employees, the loss of players, the disruption of either company’s or both companies’ ongoing businesses, inconsistencies in standards, controls, procedures and policies, unexpected integration issues, higher than expected integration costs and an overall post-completion integration process that takes longer than originally anticipated. The challenges involved in this integration, which will be complex and time-consuming, include the following:
| • | combining the companies’ operations and corporate functions; |
| • | combining the businesses of Take-Two and Zynga and meeting the capital requirements of the combined company in a manner that permits the combined company to achieve any revenue synergies or operational scale efficiencies anticipated to result from the combination, the failure of which would result in the anticipated benefits of the combination not being realized in the time frame currently anticipated or at all; |
| • | integrating and retaining personnel from the two companies, especially in the COVID-19 environment which has required employees to work remotely in most locations; |
| • | integrating the companies’ technologies and technologies licensed from third parties; |
| • | integrating and unifying the each company’s intellectual property and capabilities in game development, publishing and commercialization; |
| • | identifying and eliminating redundant and underperforming functions and assets; |
| • | harmonizing the companies’ operating practices, employee development and compensation programs, internal controls and other policies, procedures and processes; |
| • | maintaining existing agreements with business partners, suppliers and vendors, avoiding delays in entering into new agreements with prospective business partners, suppliers and vendors, and leveraging relationships with such third parties for the benefit of the combined company; |
| • | addressing possible differences in business backgrounds, corporate cultures and management philosophies; |
| • | consolidating the companies’ administrative and information technology infrastructure; |
| • | coordinating sales motions and go-to-market efforts; |
| • | coordinating geographically dispersed organizations; and |
| • | effecting actions that may be required in connection with obtaining regulatory or other governmental approvals. |
In addition, at times the attention of certain members of either company’s or both companies’ management and resources may be focused on completion of the combination and the integration of the businesses of the two companies and diverted from day-to-day business operations or other opportunities that may have been beneficial to such company, which may disrupt each company’s ongoing business and the business of the combined company.
The combined company may be unable to realize the anticipated synergies and expects to incur substantial expenses related to the combination, which could adversely affect the combined company’s business, financial condition and results of operations.
As described under “The Combination—Take-Two Unaudited Prospective Financial Information”, the combination is expected to generate $100 million of annual cost synergies within the first two years post-closing and at least $500 million of annual Net Bookings opportunities over time. The combined company’s ability to achieve such estimated cost synergies and Net Bookings opportunities in the timeframe described, or at all, is subject to various assumptions, which may or may not prove to be accurate. As a consequence, the combined company may not be able to realize all of these cost synergies and Net Bookings opportunities within the timeframe expected or at all. In addition, the combined company may incur additional or unexpected costs in order to realize these benefits. Failure to achieve the expected Net Booking opportunities and cost synergies could significantly reduce the expected benefits associated with the combination.
Certain contractual counterparties may seek to modify contractual relationships with the combined company, which could have an adverse effect on the combined company’s business and operations.
As a result of the combination, the combined company may experience impacts on relationships with contractual counterparties (such as business partners, vendors or other third party service providers) that may harm the combined company’s business and results of operations. Certain counterparties may seek to terminate or modify contractual obligations following the combination whether or not contractual rights are triggered as a result of the combination. There can be no guarantee that Take-Two’s or Zynga’s contractual counterparties will remain with or continue to have a relationship with the combined company or do so on the same or similar contractual terms following the combination. If any contractual counterparties (such as business partners, vendors or other third party service providers) seek to terminate or modify contractual obligations or discontinue the relationship with the combined company, then the combined company’s business and results of operations may be harmed.
Completion of the transaction may trigger change in control, assignment or other provisions in certain agreements to which Zynga is a party, which may have an adverse impact on the combined company’s business and results of operations.
The completion of the combination may trigger change in control, assignment and other provisions in certain agreements to which Zynga is a party. If Zynga is unable to negotiate waivers of or consents under those provisions, the counterparties may exercise their rights and remedies under the agreements, potentially terminating the agreements or seeking monetary damages or other remedies. Even if Zynga is able to negotiate waivers, the counterparties may require a fee for such waivers or seek to renegotiate the agreements on terms less favorable to the combined company. Any of the foregoing or similar developments may have an adverse impact on the business, financial condition and results of operations of the combined company, or the ability of Take-Two to successfully integrate Zynga’s business.
The combined company may be exposed to increased litigation, which could have an adverse effect on the combined company’s business and operations.
The combined company may be exposed to increased litigation from stockholders, customers, partners, suppliers, consumers and other third parties due to the combination of Take-Two’s and Zynga’s businesses following the combination. Such litigation may have an adverse impact on the combined company’s business and results of operations or may cause disruptions to the combined company’s operations.
The unaudited pro forma condensed combined financial information in this joint proxy statement/prospectus is presented for illustrative purposes only and may not be reflective of the operating results and financial condition of the combined company following completion of the combination.
The unaudited pro forma condensed combined financial information included in this joint proxy statement/prospectus are presented for illustrative purposes only, contain a variety of adjustments, assumptions and preliminary estimates and are not necessarily indicative of what the combined company’s actual financial position or results of operations would have been had the combination been completed on the dates indicated. The combined company’s actual results and financial position after the combination may differ materially and adversely from the unaudited pro forma condensed combined financial information included in this joint proxy statement/prospectus. The unaudited pro forma condensed combined financial information reflects adjustments based upon preliminary estimates of the fair value of assets to be acquired and liabilities to be assumed. The final acquisition accounting will be based upon the actual consideration transferred and the fair value of the assets and liabilities of Zynga as of the date of the completion of the combination. Accordingly, the final acquisition accounting may differ materially from the unaudited pro forma condensed combined financial information reflected in this joint proxy statement/prospectus. For more information, see the section titled “Unaudited Pro Forma Condensed Combined Financial Information.”
While presented with numeric specificity, the unaudited pro forma condensed combined financial information provided in this joint proxy statement/prospectus is based on numerous variables and assumptions (including, but not limited to, those related to industry performance and competition, general business, the software and related industries, and economic, market and financial conditions and additional matters specific to Take-Two’s or Zynga’s business, as applicable) that are inherently subjective and uncertain and are beyond the control of the respective management teams of Take-Two and Zynga. As a result, actual results may differ materially from the unaudited pro forma condensed combined financial information. Important factors that may affect actual results include, but are not limited to, risks and uncertainties relating to Take-Two’s or Zynga’s business, as applicable (including each company’s ability to achieve strategic goals, objectives and targets over applicable periods), industry performance, general business and economic conditions. See the section titled “Unaudited Pro Forma Condensed Combined Financial Information.”
The combined company’s debt may limit its financial flexibility.
To finance the combination, Take-Two will incur indebtedness in connection with the completion of the combination. Zynga also has existing indebtedness.
Take-Two’s or Zynga’s substantial indebtedness could have adverse effects on such company’s and/or the combined company’s financial condition and results of operations, including:
| • | increasing its vulnerability to changing economic, regulatory and industry conditions; |
| • | limiting its ability to compete and its flexibility in planning for, or reacting to, changes in its business and the industry; |
| • | limiting its ability to borrow additional funds; and |
| • | increasing its interest expense and requiring it to dedicate a substantial portion of its cash flow from operations to payments on its debt, thereby reducing funds available for working capital, capital expenditures, acquisitions, and share repurchases, and other purposes. |
The companies’ ability to arrange any additional financing for the purposes described above or otherwise will depend on, among other factors, the companies’ respective financial positions and performance, as well as prevailing market conditions and other factors beyond their control. The level and quality of the combined company’s earnings, operations, business and management, among other things, will impact the determination of the combined company’s credit ratings. A decrease in the ratings assigned to the combined company by the ratings agencies may negatively impact the combined company’s access to the debt capital markets and increase the combined company’s cost of borrowing. There can be no assurance that the combined company will be able to obtain financing on acceptable terms or at all. In addition, there can be no assurance that the combined company will be able to maintain the current creditworthiness or prospective credit ratings of Take-Two or Zynga, and any actual or anticipated changes or downgrades in such credit ratings may have a negative impact on the liquidity, capital position or access to capital markets of the combined company.
The COVID-19 pandemic may cause harm to the business, results of operations, and financial condition of the combined company.
The COVID-19 pandemic may have a material adverse effect on the results of operations of the combined company. The global spread of COVID-19 has created significant uncertainty, resulting in volatility and economic disruption. The extent to which COVID-19 has an impact on the combined company’s business, operations, or financial results will depend on numerous evolving factors that may not be accurately predicted, including the duration and scope of the pandemic; governmental, business, and individuals’ actions that have been and continue to be taken in response to the pandemic; economic activity and related actions taken in response to the pandemic; the effect on consumer demand for the combined company’s products and the discretionary spending patterns of the combined company’s customers, including the ability of customers to pay for the combined company’s products; the combined company’s ability to develop, market, and sell its products, including as a result of travel restrictions and people working from home; the impact on the operations of the combined company’s counterparties, including the physical retail, digital download online platforms, and cloud streaming services the combined company will rely on for the distribution of its products, the suppliers who manufacture the combined company’s physical products, and other third parties with which the combined company partners (e.g. to market or ship its products); any closures of the combined company’s, its customers’, and counterparties’ offices and facilities; additional volatility in exchange rates; the impact of potential inflation; and the impact of reductions in interest rates by the Federal Reserve and other central banks, including on the combined company’s short-term investment portfolio.
Further, “shelter-in-place,” quarantine, or other such initiatives by governmental entities could also disrupt the combined company’s operations. In such situations, if employees or third-party developers who cannot optimally perform their responsibilities from home are not able to or are unwilling to report to work, the combined company may experience material interruptions in product development and delays in bringing products to market. Such circumstances may also impact the effectiveness of the combined company’s quality controls and game testing measures. An increase in the number of employees working remotely also increases the potential adverse impact of risk associated with information technology systems and networks, including cyber-attacks, computer viruses, malicious software, security breach, and telecommunication failures, both for systems and networks the combined company controls directly and for those that employees and third-party developers rely on to work remotely. Any failure to prevent or mitigate security breaches or cyber risks or detect, or respond adequately to, a security breach or cyber risk, or any other disruptions to the combined company’s information technology systems and networks, can have adverse effects on the combined company’s business. The spread of COVID-19 has caused Take-Two and Zynga to modify their business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences), and the combined company may take further actions as may be required by government authorities or that it determines are in the best interests of its employees, customers and business partners. Further, key personnel could contract COVID-19, hindering their availability and productivity.
Additionally, sports organizations’ operations and seasons have and may be altered based on the response to COVID-19. Such events could affect the demand for the combined company’s sports titles.
While Take-Two and Zynga have developed and continue to develop plans to help mitigate the negative impact of the pandemic on their business, these efforts may not be effective, and a protracted economic downturn may limit the effectiveness of such mitigation efforts. Any of these considerations described above could cause or contribute to the risks described elsewhere herein and could materially adversely affect the combined company’s business, financial condition, results of operations or stock price. Additionally, while Take-Two and Zynga have seen increased demand for their products due to stay-at-home orders, the curtailment of certain other forms of entertainment, and other pandemic-related factors that make consumers more inclined to spend time at home, benefiting Take-Two and Zynga’s financial results and operating metrics, the trends in fiscal year 2021 with respect to Take-Two and Zynga’s revenues, net income, and other financial results and operating metrics may not be indicative of results for future periods, particularly if these pandemic-related factors become less significant.
Take-Two’s charter documents designate specific courts as the exclusive forum for certain litigation that may be initiated by Take-Two’s stockholders, which could limit the ability of stockholders of the combined company to obtain a favorable judicial forum for disputes with the combined company.
Take-Two’s certificate of incorporation and bylaws (which will remain the combined company’s certificate of incorporation and bylaws following the closing) provide that, unless Take-Two consents in writing to the selection of an alternative forum, the sole and exclusive forum for (A) any derivative action or proceeding brought on Take-Two’s behalf; (B) any action asserting a claim of breach of a fiduciary duty owed by any of Take-Two’s directors, officers, or other employees to Take-Two or its stockholders; (C) any action asserting a claim arising pursuant to any provision of the DGCL or the Take-Two certificate of incorporation or Take-Two bylaws (including the interpretation, validity or enforceability thereof); or (D) any action asserting a claim governed by the internal affairs doctrine, is the Court of Chancery of the State of Delaware or, if the Court of Chancery of the State of Delaware does not have jurisdiction, the Superior Court of the State of Delaware, or, if the Superior Court of the State of Delaware does not have jurisdiction, the United States District Court for the District of Delaware, subject to the court’s having personal jurisdiction over the indispensable parties named therein, which is referred to as the “Delaware forum provision.” The Delaware forum provision will not apply to any causes of action arising under the Securities Act or the Exchange Act. The Take-Two bylaws further provide that unless Take-Two consents in writing to the selection of an alternative forum, the district courts of the United States shall be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, which is referred to as the “federal forum provision.” In addition, the Take-Two bylaws provide that any person or entity purchasing or otherwise acquiring any interest in shares of Take-Two’s capital stock is deemed to have notice of and consented to the Delaware forum provision and the federal forum provision; provided, however, that stockholders cannot and will not be deemed to have waived Take-Two’s compliance with the U.S. federal securities laws and the rules and regulations thereunder.
The Delaware forum provision and the federal forum provision in the Take-Two bylaws may impose additional litigation costs on stockholders in pursuing any such claims. Additionally, these forum selection clauses may limit Take-Two stockholders’ ability to bring a claim in a judicial forum that they find favorable for disputes with Take-Two or its directors, officers or employees, which may discourage the filing of lawsuits against Take-Two and its directors, officers and employees, even though an action, if successful, might benefit Take-Two stockholders. In addition, Section 22 of the Securities Act creates a concurrent jurisdiction for state and federal courts over all suits brought concerning a duty or liability created by the securities laws, rules and regulations thereunder. While the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions purporting to require claims under the Securities Act be brought in federal court are “facially valid” under Delaware law, there is uncertainty as to whether other courts will enforce its federal forum provision. If the federal forum provision is found to be unenforceable, Take-Two may incur additional costs associated with resolving such matters. The federal forum provision may also impose additional litigation costs on stockholders who assert that the provision is not enforceable or invalid. The Court of Chancery of the State of Delaware and the federal district courts of the United States may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to Take-Two than its stockholders.
Other Risk Factors Related to Take-Two and Zynga
Take-Two’s and Zynga’s businesses are and will be subject to the risks described above. In addition, Take-Two and Zynga are, and will continue to be, subject to the risks described in, as applicable, Take-Two’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021 and Zynga’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as such risks may be updated or supplemented in each company’s subsequently filed Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, each of which are filed with the SEC and incorporated by reference in this joint proxy statement/prospectus. See the section titled “Where You Can Find More Information.”
