WHEN: Today, Monday, January 10, 2022
WHERE: CNBC's "Squawk on the Street"
Following is the unofficial transcript of a CNBC exclusive interview with Take-Two Interactive Chairman & CEO Strauss Zelnick on CNBC's "Squawk on the Street" (M-F 9AM – 11AM ET) today, Monday, January 10th. Following is a link to video on CNBC.com: https://www.cnbc.com/video/2022/01/10/take-two-interactive-ceo-on-decision-to-buy-mobile-gaming-company-zynga.html.
All references must be sourced to CNBC.
DAVID FABER: Shares of Take-Two Interactive are down sharply this morning. You've seen it. Down over 12%. This after announcing its plans to buy Zynga. Joining us now is Take-Two's Chairman and CEO Strauss Zelnick. Strauss, it's great to have you this morning. You know, your shareholders are seeing a bit of losses pile up there. So what do you tell them as to why this is the right thing for Take-Two to do?
STRAUSS ZELNICK: Look, this is a transformative opportunity for us. This will position Take- Two as one of the largest publicly traded interactive entertainment companies in the world with over 50% of our net bookings coming from the fastest growing segment in the business – mobile and free to play. It also positions us to grow our collection of owned intellectual property. One of the things that we love about Zynga is like Take-Two, you have a multiplicity of great titles that they control – many great titles, what they call forever franchises. We think that's a great opportunity going forward. You know, it's early days, right? We've just announced this but one of things that we announced is, without regard to any revenue synergies, we expect the combined company to grow its top line about 14% annually for the next three years through our fiscal 24. And yet, we've also identified a minimum of $500 million in annual revenue run rate synergies by working together, by improving the quality of our collective operations, and by bringing new products to market. So we think it's extraordinarily exciting.
FABER: Yeah. All right. Listen, we do see given there is a stock component here, there is sometimes a natural arbitrage in terms of some people shorting this stock, but it's still down over almost 13%, Strauss. Not necessarily how you draw it up in the boardroom. What do you tell those shareholders right now and what do you think in terms of the loss of almost 13% of your market value after your announce of a transformative deal?
ZELNICK: Look, the math is the math. And I think if you solely focus on the stock component and the premium paid, you can understand the trading pattern. However, we're building this company for the long term. And that's always been our approach. And while one would never want to be cavalier about one's stock performance because they're real investors who are trading, we are trying to build a business over a very long period of time and we've never paid that much attention to intraday trading marks. We've paid attention to creating value for our players, for our colleagues, and most importantly, for our shareholders. And that's worked out over a very long period of time and I believe it will work out here as well.
JIM CRAMER: Now, Strauss it is Jim. It's always good to see you. Thank you for coming to our show.
ZELNICK: Thanks, Jim. Great to see you.
CRAMER: Strauss, one thing I was confused about – this is normally a level where if you weren't doing a deal, I think you'd be buying a lot of stock. That the stock has gotten quite cheap versus where it has been. What do you do with the existential crisis of basically saying, "Listen, my stock is down so low, boy I'd love to buy it." But you're issuing stock.
ZELNICK: We are and we have collar around the transaction, which protects that of course within a range, and we did do a buyback back recently. We bought a great deal of stock at a price of about 158. But as you know, we can't project around intraday movements. We have to make long term strategic bets and in the fullness of time, I believe this will prove to be very a successful one.
CRAMER: Ok, because there's been some disagreement about how much it matters say that one of the two Houser's left at Grand Theft, Dan, that there have been some defects in the new Grand Theft Auto there's been a – you have always held this we're not going to put out any game before it's time. Can this smooth out what many of these analysts – although you have not – but smooth out a kind of a longer term view that also adds mobile to make it so that your earnings are less episodic?
ZELNICK: Unquestionably we expect our earnings to be less episodic. This will give us a larger, more diversified financial and creative footprint. And we think that'll benefit shareholders. And with regards to the GTA trilogy, that was actually not a new title. That was a remaster of preexisting titles. We did have a glitch in the beginning, that glitch was resolved. And the title of has done just great for the company. So we're very excited. We have an amazing pipeline going forward. Zynga has an incredible pipeline going forward. And together, we think we can do a whole lot more than what's already been announced.
FABER: Strauss, you mentioned the collar. The stock is trading below that collar so that will have the effect of at least bringing the value overall down a bit. There also is a 45 day go shop, which is not necessarily typical of a deal like this. Why was that included? Why is that something you agreed to?
ZELNICK: Look, Zynga's board requested that. Details will be filed in the next couple of days. You know, we are protected in the event that the deal does not come our way in terms of a breakup consideration. We wanted to be as friendly as possible to the party. We're combining. And we believe that the deal will come to fruition because we think the deal makes the most sense for shareholders.
FABER: Yeah, I mean, my understanding is there wasn't a competitive process so this protects them. Do you expect that there might be another bidder here that wants to own Zynga as much as you do?
ZELNICK: Very hard for me to say.
FABER: And what about the competitive landscape overall? When you think about EA or you think about Activision right now, you know, in terms of what you have now done with this deal. how are you positioned versus those competitors?
ZELNICK: Look, we've been saying for years including, including on this show, that the one burden that we couldn't resolve organically in the time frame we'd like to was scale and to be competitive, to address the most interesting opportunities in the future and to deliver competitive operating margins, we needed scale but it had to be a certain kind of scale. It had to be scale that was consistent with what we need to provide to our players, which is the best collection of owned intellectual property in the business. That had to be consistent culturally as well to make sure that it works. We're now on a pro forma basis at $6 billion in net bookings, growing 14% annually the next three years. That puts us in a position where we are highly competitive with the two bigger players in the business and I think scale will matter and given the opportunities that we see ahead. I think it matters more than ever.
FABER: You know, you mentioned culture. There's always a concern on the part of shareholders perhaps it's even being reflected to a certain extent your stock price right now that it's difficult to integrate. What assurances do you give your shareholder base that you know how to actually undertake this to make sure that the cultures do mesh and that you do get those synergies that are so important to this deal you're talking about?
ZELNICK: They're fair questions, you know, we we've gotten to know this management team over a very long period of time so obviously a very friendly combination and one of the key issues was, do we fit together culturally. We're so excited that Frank Gibeau and Bernard Kim are going to run the Zynga division which encompasses TTWO mobile games and Zynda's operations inside the Take-Two family and we're all on the same page about the way that we need to integrate. Of course, the real win is creating new revenue. We will also be able to, to reduce costs as we ought to, but the exciting opportunities are all about taking our existing titles and marketing them more effectively. We're now going to have a combined customer database of a billion records. I mean it's absolutely extraordinary and Zynga has great data analytics and a chart whose platform that will speak to everything to Take-Two is doing in mobile and free to play. Zynga has ambitions in cross platform titles, we have that expertise here. And we have great intellectual property that so far has been expressed on console and PC and has not been brought to mobile. We think we can bring that to mobile and that is not reflected in the revenue synergies that we've discussed. That's, that's incremental.
CRAMER: Now Strauss, I was out in NVIDIA recently and it's very clear that Jensen's got unbelievable ideas about the actual, I'm talking about lifelike, maybe more than lifelike characters, where you can insert them into current video games. Where are you with using these new chips that NVIDIA has that make it so that it's not just lifelike but it's just pure reality?
ZELNICK: So, it's a great question. You know, we haven't talked about specific chip manufacturers, you know, NVIDIA's a spectacular company, and I know a favorite of yours, Jim, and it's been a great call. I've said many times within the next five plus years, always hard to call the exact timing, we're going to be able to make interactive entertainment that looks like live action, even though it's entirely created inside a computer. Now, not all titles will want to look that way in the same way that not all motion pictures today are live action. There's animation as well. There, there are numerous different creative expressions in interactive entertainment. However, in certain instances, for example, sports games, basketball, I think you can expect that they will look more and more lifelike and that's a result of what, what technological advances are enabling our creative teams to do and, you know, combined, we're going to have 8,000 people who develop video games between the Zynga operation and the Take-Two operation.
FABER: Wow. Finally, you know, kind of on that note to a certain extent, even deals that don't appear any competitive on the face and I would include yours amongst them, get a very tough review these days from the, the DOJ or the FTC. What assurances can you give shareholders in your belief at least that you're going to be able to pass the regulatory review that's coming your way on an antitrust level?
ZELNICK: We feel good about it. We're still smaller than, than our biggest competitors of course. We have a very diverse business. This is a huge market. We're still in terms of percentage of the overall market a relatively small enterprise so we feel cautiously optimistic.
FABER: Alright. Strauss, appreciate you joining us on this important day for your company. Thank you.
ZELNICK: Thank you for having me.