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Glu Mobile (GLUU) surged over 11% on Thursday, February 7th and there could be a couple of reasons why:

1) Gov. Chris Christie of New Jersey is very open to the idea of Internet gambling, even though he kinda-sorta vetoed it. But it may pass in maybe a month or so if a deal is met.

2) An SEC filing on the same day showed a 600,000 share acquisition.

Before I get into the SEC filing, I want to focus some on the Internet gambling aspect.

Glu Mobile is entering the online gambling market in the U.K. According to its financial report released a couple of days ago:

"... our first real money gambling title will be in the slots category with a theme based around our well loved Samurai vs. Zombies IP. It will launch in Q1 on iOS and the UK through our partnership with Probability PLC."

Nevada and Delaware currently have online gambling, but an in-road to Atlantic City would be a boon for anyone who can get in. Zynga (ZNGA) is trying to get into Nevada quickly. But New Jersey may be up for grabs. If Glu Mobile can show success across the pond, they may have an established leg up on the Zynga giant. This could make Zynga mad. It is no secret that Zynga likes to buy companies. However, Zynga has not been making the Scrooge McDuck level money it once was, so it's had to pull back a little. Now it has an acquisition plan.

Let's look at the key points it looks for when acquiring a company:

  1. Would an acquisition help to accelerate the company's existing franchises?
  2. Would it help increase profitability?
  3. Will it support Zynga's network of players?

Obviously, all three check out for Glu Mobile's GAMING area. This is not new and Glu has been rumored to be soon-to-be bought out by Zynga before. So what does online gambling add to this?

Zynga is in the U.K. gambling business too. And now there is a buzz beginning in the U.S. about more states potentially approving online gambling (California and Hawaii are also considering this). There will be a race to be the company in the forefront of this new revenue stream. This puts Glu Mobile and Zynga in direct competition for millions, if not billions of dollars of revenue. So instead of trying to compete with Glu Mobile and potentially losing a billion dollars, why not buy Glu Mobile for 25% of that?

Glu Mobile has about 66 million shares outstanding. At $4 a share, that is $264 million. Granted, that is quick math. I haven't accounted for market cap, sales and, you know, real math. I'm just throwing a number out there. But $264 million versus losing potential money from various states in online gambling revenue? This should make Zynga really look hard at finally buying Glu Mobile.

So that's point one from the beginning of this article, the gambling legalization. So what about that 600k share SEC filing? That's even more fun. From the SEC filing:

"F9E is the record and beneficial owner of the 600,000 shares of Common Stock (the "Shares"), representing approximately 0.9 % of the outstanding shares of Common Stock. F9E Holdco owns a majority of the shares of F9E and may be deemed the beneficial owner of the Shares."

F9E, or Foundation 9 Entertainment is one of the largest independent game developers in the world.

But there is also another name in the SEC filing: Francisco Partners Management, LP

There is something very interesting about them:

"Francisco Partners specializes in financing divisional buyouts, "take privates" of public companies, sponsored mergers and acquisitions, growth equity financing, recapitalizations, and restructurings. It prefers to invest in mature or maturing technology and technology-related companies. The firm seeks to invest in software, Internet, healthcare technology, communications, hardware and technology services. It prefers to invest in companies with enterprise values ranging from $25 million to $2 billion. The firm makes equity investments ranging from less than $25 million to over $500 million. It typically acquires a majority or controlling stake in its portfolio companies, but will be a minority investor with board of director representation."

So GLU Mobile had 600k of its shares bought by a leading game developer who is working with a large buyout company. Is Foundation 9 Entertainment going to try a takeover of Glu Mobile? Or does this SEC filing show that they are already in the process of doing it?

I won't go too deep (yet) into the conspiracy theory rabbit hole on this because I feel that the SEC filing is enough evidence that something is up when a giant gaming company is working with an acquisition company and buying another company's shares.

So where does this leave Glu Mobile? I did not discredit the gambling aspect of this due to the simple reason that gambling equals a ton of revenue. Zynga had its chance to try to acquire GLU Mobile and if it doesn't act fast, it will lose out to, potentially, a worldwide company that will be much stronger competition than the $150m-ish market capped Glu Mobile. And this isn't just about gambling. Zynga would have bigger competition in mobile gaming in general.

Now I'll go down the conspiracy rabbit hole a smidge about the 600k share purchase and show that this is not wishful thinking that Glu Mobile is about to be bought. And Zynga, if it doesn't act fast, will lose a great opportunity to get a strong foothold on the online gambling potential as well as the freemium games Glu Mobile already offers. Notice Foundation 9 and Francisco Partners have a history together:

"On June 1, 2006 Foundation 9 received $150 million from Francisco Partners, a private equity firm. Foundation 9 announced the acquisition of Shiny Entertainment on October 2, 2006, Amaze Entertainment on November 14, 2006, and Sumo Digital on August 17, 2007. On May 25, 2007, the Charolettetown, PEI studio of Foundation 9 constituent Backbone Entertainment was spun off to become Other Ocean Interactive."

(full link)

So if Zynga finally wants Glu Mobile bad enough, can it afford a bidding war with these deep pockets? Does it go all-in or fold? Or is it even too late for that and the buyout is already in motion for Glu Mobile?

Source: Is Glu Mobile A Takeover Target? Can Zynga Afford It?