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Zynga Buys NaturalMotion For $530 Million Cuts Loss Shares Rise 25%

Company founder and former CEO Mark Pincus

Last week game developer Zynga, whose original core businesses, including the internet game FarmVille, have been on a downward trend for some time, on Thursday announced it had signed an agreement for a significant acquisition. Zynga is buying UK game developer NaturalMotion, in a transaction in cash and stock valued at about US$530 million.

In an SEC filing last week Zynga disclosed it would pay US$$391 million in cash for the developer of “Clumsy Ninja”, plus almost 40 million of Zynga shares. At the then current price of around US$3.50 per share the share consideration was worth about US$140 million.

Zynga’s new CEO Don Mattrick, who was poached from Microsoft last summer where he was head of their Xbox division, also announced last week that Zynga would cut 314 more jobs to trim its overheads. This represents about 15% of its current staff and comes after an earlier round of staff cuts last June. Zynga’s founder Mark Pincus was then “elevated” from the CEO job to become the company’s Chairman and Chief Product Officer. As of last April Pincus held an 11.9% economic interest, and a 61% voting interest, in the shares of the company. At September 30th his voting interest was 63%.

On Friday the company’s shares rose significantly in response to the announcement of both the acquisition and, as well, of significantly reduced operating losses for the previous quarter, and closed out the week at US$4.40 per share. This resulted in a market capitalization (before the new shares which are issuable for the acquisition when it closes) of close to US$3.6 billion, still only about one third of the value at the shares’ peak in April of 2012.

Zynga had gone public with a major IPO in 2011 leaving it flush with about US$1.9 billion in cash at the end of 2011. Even with significant losses, by December 31st, 2013 this number was still over US$1.5 billion which, for a debt free company, gives management the luxury of enough time to turn things around.

Oxford, England based, NaturalMotion was founded 12 years ago and itself has 260 employees. As well as mobile games such as Clumsy Ninja and My Horse, NaturalMotion has some useful animation and simulation technologies, named Euphoria and Morpheme that other game makers employ.

Once dependent upon Facebook for its gamers, Mattrick’s key strategy for rejuvenating the company is to move quickly into mobile and this move will likely now accelerate with the new acquisition.

Mattrick said of the acquisition, “We believe that bringing Zynga and NaturalMotion together is the right step at the right time, ” adding…”Our acquisition of NaturalMotion will allow us to significantly expand our creative pipeline, accelerate our mobile growth and bring next-generation technology and tools to Zynga that we believe will fast track our ability to deliver more hit games.”

“ Their creative portfolio aligns perfectly with our content strategy as Zynga will now have five top brands and capabilities in the Farm, Casino, Words, Racing and People categories. We are confident that we will build upon our market position with complementary strengths to generate long term value for our consumers, our employees and our shareholders.”

Last summer Zynga almost became consumed by its crisis; at the time Zynga had lost almost half its daily game players and said it would get “back to basics.” Founder Mark Pincus became Chairman and Chief Product Officer and Don Mattrick came in as CEO to turn things around at the operating level.

As a sign of progress last week on Thursday, Zynga also reported a quarterly net loss of about US$25 million, or $0.03 per share, which was almost exactly half its US$49 million loss for the same quarter a year earlier. The lower loss was achieved with revenues for the quarter of only US$176 million, down from $311 million in the same quarter a year earlier. Clearly, Don Mattrick must be doing some of the right things on the cost side, though he still has some way to go.

About Mark Pincus

Mark Pincus founded Zynga in 2007, and served as its Chief Executive Officer for six years, during which time Zynga pioneered the social gaming industry, bringing gaming to the mainstream. Since its founding, more than one billion people in 200 countries across web and mobile platforms have played and connected through Zynga games.

Pincus also founded Zynga.org, a nonprofit organization dedicated to using social games for social good that, since 2009, has raised more than $15 million by connecting over 1 million players with more than 50 nonprofit organizations around the world.

He founded FreeLoader in 1995, the first web-based push company. Later, he founded Support.com, a pioneer in automating tech support, and took it public. In 2003, he launched Tribe.net, one of the first social networks.

Mark Pincus also made founding investments in Napster, Twitter and Facebook. He is an angel investor in several Silicon Valley startups and regularly gives lectures to aspiring entrepreneurs.

He is married to Alison Pincus and they have twin daughters. Pincus graduated summa cum laude from University of Pennsylvania’s Wharton School of Business and he earned an MBA from the Harvard Business School.

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