Zynga Trades At A 10% Discount To Take-Two's Purchase Offer; Expect That Gap To Partially Close Soon

Summary

• TTWO announced it is purchasing ZNGA for a reported $9.86 per share in cash and stock. The stock component took a hit but still implies a $9.31 value.
• ARNA's purchase by PFE last month saw it rise to 10% below the offer price on the first day and has since closed that gap to 6% below the offer.
• ZNGA could see additional upside if TTWO increases in price or if another bid is solicited. Conversely, if TTWO continues to drop, ZNGA's upside becomes limited.
• Risk tolerant investors can make the ZNGA long trade more lucrative and risky by purchasing call options instead of stock.

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Zynga Inc. (ZNGA) rose 41% on Monday after Take-Two Interactive Software, Inc. (NASDAQ:TTWO) announced that it will be purchasing the company for $9.86 per share. However, that 41% rise resulted in an $8.44 close, 14% below the supposed take-out target and down from

Analyst’s Disclosure:I/we have a beneficial long position in the shares of ZNGA either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.