adverse effect on Zynga or Take-Two or on the expected benefits of the combination in any way meaningful to its analysis. Goldman Sachs also assumed that the combination will be consummated on the terms set forth in the merger agreement, without the waiver or modification of any term or condition the effect of which would be in any way meaningful to its analysis.
Goldman Sachs’ opinion does not address the underlying business decision of Zynga to engage in the combination or the relative merits of the combination as compared to any strategic alternatives that may be available to Zynga; nor does it address any legal, regulatory, tax or accounting matters. Goldman Sachs’ opinion addresses only the fairness from a financial point of view to the holders (other than Take-Two and its affiliates) of shares of Zynga common stock, as of the date of the opinion, of the merger consideration to be paid to such holders pursuant to the merger agreement. Goldman Sachs’ opinion does not express any view on, and does not address, any other term or aspect of the merger agreement or the transactions contemplated by the merger agreement or any term or aspect of any other agreement or instrument contemplated by the merger agreement or entered into or amended in connection with the combination, including the fairness of the combination to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors, or other constituencies of Zynga; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of Zynga, or class of such persons, in connection with the combination, whether relative to the merger consideration to be paid to the holders (other than Take-Two and its affiliates) of shares of Zynga common stock in the combination or otherwise. Goldman Sachs did not express any opinion as to the prices at which shares of Take-Two common stock or shares of Zynga common stock will trade at any time, as to the potential effects of volatility in the credit, financial and stock markets on Zynga or Take-Two or the combination, or as to the impact of the combination on the solvency or viability of Zynga or Take-Two or the ability of the Zynga or Take-Two to pay their respective obligations when they come due. Goldman Sachs’ opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to it as of, the date of the opinion and Goldman Sachs assumed no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after the date of its opinion. Goldman Sachs’ advisory services and its opinion were provided for the information and assistance of the Zynga board of directors in connection with its consideration of the combination and such opinion does not constitute a recommendation as to how any holder of shares of Zynga common stock should vote with respect to such transaction or any other matter. Goldman Sachs’ opinion was approved by a fairness committee of Goldman Sachs.
Summary of Material Financial Analysis
The following is a summary of the material financial analyses presented by Goldman Sachs to the Zynga board of directors in connection with rendering the opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before January 7, 2022, the last trading day before the public announcement of the combination, and is not necessarily indicative of current market conditions.
Illustrative Present Value of Future Stock Price Analysis—Zynga Standalone. Goldman Sachs performed an illustrative analysis of the implied present value of an illustrative future value per share of Zynga common stock on a standalone basis, which is designed to provide an indication of the present value of a theoretical future value of Zynga’s equity as a function of Zynga’s financial multiples. For this analysis, Goldman Sachs used the Zynga standalone projections as of December 2021 for each of Zynga’s fiscal years 2022, 2023, and 2024. Goldman Sachs first calculated the implied future enterprise value of Zynga as of December 31, 2022 and 2023, by applying a range of enterprise value to one year forward EBITDA estimates (which are referred to for purposes of this section of the joint proxy statement/prospectus as “forward EV/EBITDA”) multiples of 10.0x to 15.0x to
the EBITDA estimates for Zynga contained in the Zynga standalone projections as of December 2021 for each of Zynga’s fiscal years 2023 and 2024. These illustrative multiples were derived by Goldman Sachs utilizing its professional judgment and experience, taking into account, among other things (i) the average multiple of enterprise value to EBITDA for the next twelve-month period, which is referred to in this section as “NTM EBITDA”, for Zynga over the 1-month, 3-month, 6-month, 1-year, 2-year, 3-year and 5-year periods prior to January 7, 2022 and (ii) the multiple of enterprise value to NTM EBITDA of Zynga as of January 7, 2022, in each case, based on information obtained from Bloomberg, Capital IQ, IR Insight by Nasdaq, market data and Institutional Brokers’ Estimate Systems estimates. To derive illustrative implied equity values per share of Zynga common stock as of December 31, 2022 and 2023, Goldman Sachs then subtracted the amount of Zynga’s estimated net debt (defined as gross financial debt less cash and cash equivalents) of $155 million as of December 31, 2022 and $(530) million as of December 31, 2023, respectively, as provided by management of Zynga, from the range of implied enterprise values. Goldman Sachs then divided these implied equity values by a range of 1,235 million to 1,239 million projected fully diluted shares outstanding as of December 31, 2022 and a range of 1,260 million to 1,264 million projected fully diluted shares outstanding as of December 31, 2023, in each case as provided by management of Zynga and calculated using the treasury stock method, to determine implied equity values per share of Zynga common stock. Goldman Sachs then discounted these implied equity values per share to January 7, 2022, using a discount rate of 7.0%, reflecting an estimate of Zynga’s cost of equity. Goldman Sachs derived such discount rate by application of the Capital Asset Pricing Model (“CAPM”), which requires certain company-specific inputs, including a beta for the company, as well as certain financial metrics for the United States financial markets generally. These analyses resulted in a range of implied present values per share of Zynga common stock, rounded to the nearest $0.10, of $6.20 to $10.70.
Illustrative Pro Forma Present Value of Future Share Price Analysis—Combined Company. Goldman Sachs performed an illustrative analysis, of the implied present value of the merger consideration per share of Zynga common stock based on a theoretical future value per share of the common stock of the combined company pro forma for the combination. For this analysis, Goldman Sachs used the forecasts of EBITDA of Take-Two pro forma for the transaction for its fiscal years 2024 and 2025 included in the combined company projections prepared by Zynga (including the synergy projections).
Goldman Sachs first calculated the illustrative implied future equity values per share of Take-Two pro forma for the combination as of March 31 for each of its fiscal years 2023 and 2024, by applying forward EV/EBITDA multiples of 15.0x to 20.0x to the one year forward EBITDA estimates for the combined company included in the combined company projections prepared by Zynga. These illustrative multiple estimates were derived by Goldman Sachs utilizing its professional judgment and experience, taking into account, among other things (i) the average multiple of enterprise value to NTM EBITDA for both Zynga and Take-Two over the 1-month, 3-month, 6-month, 1-year, 2-year, 3-year and 5-year periods prior to January 7, 2022 and (ii) the multiple of enterprise value to NTM EBITDA of both Zynga and Take-Two as of January 7, 2022, in each case, based on information obtained from Bloomberg, Capital IQ, IR Insight by Nasdaq, market data and Institutional Brokers’ Estimate Systems estimates. To derive illustrative implied equity values per share of the combined company as of March 31, 2023 and 2024, Goldman Sachs then subtracted the amount of the estimated net debt of the combined company of $572 million as of March 31, 2023 and $(473) million as of March 31, 2024, respectively, as provided by the management of Take-Two and approved for Goldman Sachs’ use by Zynga, from the range of implied enterprise values. Goldman Sachs then divided this range of illustrative equity values by 172 million estimated shares of the pro forma combined company outstanding as of March 31, 2023 and 173 million estimated shares of the pro forma combined company outstanding as of March 31, 2024, in each case as provided by the management of Take-Two and approved for Goldman Sachs’ use by the management of Zynga, to determine implied equity values per share of common stock of the combined company. Goldman Sachs then discounted these future values back to January 7, 2022, using an illustrative discount rate of 6.0%, reflecting an estimate of the pro forma combined company’s cost of equity. Goldman Sachs derived such discount rate by application of the CAPM, which requires certain company-specific inputs, including a beta for the company, as well as certain financial metrics for the United States financial markets generally. Goldman Sachs then multiplied the range of illustrative present equity values it derived for the shares of the pro forma combined company’s
stock by the exchange ratio of 0.0350 shares of Take-Two common stock to be paid for each share of Zynga common stock (which represents the lowest possible exchange ratio implied by the collar), and added the result to the $3.50 per share in cash to be paid to the holders of shares of Zynga common stock pursuant to the merger agreement. This analysis resulted in a range of illustrative present values for the merger consideration to be paid per share of Zynga common stock, rounded to the nearest $0.10, of $9.50 to $13.10.
Illustrative Discounted Cash Flow Analysis—Zynga Standalone. Using the Zynga standalone projections as of December 2021, Goldman Sachs performed an illustrative discounted cash flow analysis of Zynga on a standalone basis to derive a range of illustrative present values per share of Zynga common stock on a standalone basis. Using the mid-year convention for cash flows and discount rates ranging from 6.0% to 8.0%, reflecting estimates of Zynga’s weighted average cost of capital, Goldman Sachs discounted to present value as of September 30, 2021 (i) estimates of standalone, unlevered free cash flow for Zynga for the fourth quarter of Zynga’s fiscal year 2021 through Zynga’s fiscal year 2026 as reflected in the Zynga standalone projections as of December 2021 and (ii) a range of illustrative terminal values for Zynga, which were calculated by applying perpetuity growth rates ranging from 1.50% to 2.50%, to a terminal year estimate of the unlevered free cash flow to be generated by Zynga of $661 million, as reflected in the Zynga standalone projections as of December 2021 (which analysis implied exit terminal year last-twelve month (“LTM”) EBITDA multiples ranging from 8.9x to 16.8x). Goldman Sachs derived such discount rates by application of the CAPM, which requires certain company-specific inputs, including the company’s target capital structure weightings, the cost of long-term debt, after-tax yield on permanent excess cash, if any, future applicable marginal cash tax rate and a beta for the company, as well as certain financial metrics for the United States financial markets generally. The range of perpetuity growth rates was estimated by Goldman Sachs utilizing its professional judgment and experience, taking into account the Zynga standalone projections as of December 2021 and market expectations regarding long-term real growth of gross domestic product and inflation.
Goldman Sachs derived a range of illustrative enterprise values for Zynga by adding the ranges of present values it derived as described above. Goldman Sachs then subtracted from the range of illustrative enterprise values Zynga’s net debt of $541 million as of September 30, 2021 after giving effect to the $316 million upfront cash consideration Zynga paid to acquire StarLark on October 5, 2021, as provided by management of Zynga, to derive a range of illustrative equity values for Zynga. Goldman Sachs then divided the range of illustrative equity values it derived by a range of 1,208 million to 1,219 million fully diluted outstanding shares of Zynga common stock as of January 6, 2022, as provided by the management of Zynga and calculated using the treasury stock method, to derive a range of illustrative present values per share, rounded to the nearest $0.10, of $7.10 to $13.30.
Illustrative Discounted Cash Flow Analysis—Combined Company. Using the combined company projections prepared by Zynga, Goldman Sachs performed an illustrative discounted cash flow analysis for the combined company pro forma for the combination. Using the mid-year convention for cash flows and discount rates ranging from 5.0% to 7.0%, reflecting estimates of the pro forma combined company’s weighted average cost of capital, Goldman Sachs discounted to present value as of March 31, 2022 (i) estimates of unlevered free cash flow for Take-Two pro forma for the transaction in its fiscal years 2023 through 2027 as reflected in the combined company projections prepared by Zynga and (ii) a range of illustrative terminal values for the pro forma combined company, which were calculated by applying perpetuity growth rates, ranging from 1.50% to 2.50%, to a terminal year estimate of the unlevered free cash flow to be generated by the pro forma combined company of $2,081 million, as reflected in the combined company projections prepared by Zynga. Goldman Sachs derived such discount rates by application of the CAPM, which requires certain company-specific inputs, as described above, as well as certain financial metrics for the United States financial markets generally. The range of perpetuity growth rates was estimated by Goldman Sachs utilizing its professional judgment and experience, taking into account the combined company projections prepared by Zynga and market expectations regarding long-term real growth of gross domestic product and inflation.
Goldman Sachs derived ranges of illustrative enterprise values for the combined company by adding the ranges of present values it derived as described above. Goldman Sachs then subtracted from the range of illustrative enterprise values it derived for the combined company the pro forma estimated net debt of $1,165 million for the combined company as of close of the combination, as provided by the management of Take-Two and approved
