NEW YORK (REUTERS, AFP) - Grand Theft Auto video game maker Take-Two Interactive said on Monday (Jan 10) it would buy Zynga for US$11.04 billion (S$14.94 billion) in a cash-and-stock deal that will add popular mobile titles such as FarmVille under its umbrella as demand surges for on-the-go gaming.

The deal, the largest ever in the sector, will create a gaming powerhouse with a market cap of nearly US$30 billion, spanning console, PC and mobile devices at a time that more people are gaming on their smartphones.

The deal comes as Take-Two plans more smart phone versions of its games, which also include Red Dead Redemption and NBA2K.

The transaction also is designed to promote Take-Two's growth outside of its core markets in the United States and Western Europe. Take-Two officials emphasised that Zynga has a presence in more than 175 countries.

Zynga's games are generally free to play and the company generates revenues through the sale of in-game virtual items and advertising.

Take-Two offered US$3.50 in cash and US$6.361 in shares for each Zynga share, a 64 per cent premium to the last closing price. Including debt, the acquisition is worth $12.7 billion.

"It's a bombshell deal... Zynga was on the list of potential M&A transactions for a long time in the video game business," said Dr Serkan Toto, chief executive officer of video game consulting firm Kantan Games.

"Take-Two is looking at the industry map and says 'we have basically nothing here'. So, a lot of people have been have been expecting Take-Two to make a big deal in mobile to close the gap with competitors like Electronic Arts for example."

Mr Michael Pachter, a video gaming specialist at Wedbush Securities, views the proposed purchase as a "wise move" for Take-Two.

"The deal transforms Take-Two from 10 per cent mobile to over 50 per cent, and mobile is the fastest growing segment of video games," he said.

Take-Two chief executive Strauss Zelnick said in a statement: "We are thrilled to announce our transformative transaction with Zynga, which significantly diversifies our business and establishes our leadership position in mobile, the fastest growing segment of the interactive entertainment industry."

Mr Zelnick, in a conference call with analysts, highlighted Zynga's expertise in free-to-play games which could allow for greater growth in India, parts of Latin America and the Middle East.

"We basically have 80 per cent of the world's geography that is greenfield opportunity for us," Mr Zelnick said. "Large parts of that geography really is driven by free-to-play and that's where Zynga's expertise lies."

Zynga's CEO Frank Gibeau noted a growth opportunity in the deal, citing the combining of "Zynga's expertise in mobile and next-generation platforms with Take-Two's best-in-class capabilities and intellectual property".

Mr Zelnick is set to lead the combined company, with Zynga's team led by Mr Gibeau and Mr Bernard Kim, president of publishing, overseeing the combined company's mobile gaming efforts.

Zynga shares surged 45 per cent on Monday, but were still a dollar and change short of the offer price, while Take-Two fell about 15 per cent.

The deal is expected to close in the first half of this year. There is also a go-shop period of 45 days, meaning Zynga can negotiate with other buyers for a better offer until Feb 24.

The two companies have held talks off and on in the past year, according to a source familiar with the matter.

The latest round of negotiation came late last year, as Zynga shed more than a third of its market value, the biggest drop among major game publishers. Zynga has reeled from falling engagement levels and Apple's move to allow iPhone users to opt out of being tracked by advertisers.

"It is a big price tag for a company that has not consistently produced profits or new blockbusters," said Professor Erik Gordon, at the University of Michigan's Ross School of Business.

But with the mobile gaming market likely to reach a size of US$116.4 billion by 2024, according to data firm Newzoo, some analysts said more deals were expected in the sector.

"This trend won't stop here. Many of the console developers are finding out that creating mobile games is difficult," said D.A. Davidson analyst Franco Granda.

Crypto and the metaverse are potential growth opportunities, but mobile gaming is proven to work, he said.

Take-Two expects about US$100 million in annual cost savings within the first two years, and more than US$500 million in net bookings over time when the deal closes in mid-2022.

JP Morgan and LionTree advised Take-Two while Goldman Sachs advised Zynga on the sale.