News Corp (NWSA) acting greedy with Zynga?

avatar By: IS
Date posted: 03.07.2011 (5:00 am) | Write a Comment  (1 Comment)

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The idea was first put on by MySpace CEO Jason Hirschhorn.. if MySpace is for sale, one of the few companies that would care enough to make a bid would/should be Zynga. I thought Nicholas Carlson argued the point well and his valuation estimates of the deal made a lot of sense. $50 million is a lot of money for a company that is going downhill so quickly, but if it becomes a cheaper source of traffic for Zynga, then it could well be worth the purchase right?

Rumors came out on Friday that Zynga was about to walk away from negotiations for MySpace. Why? Because News Corp execs are acting greedy and want a lot of money. First off, it seems that they are asking for over $100 million, more than double the price that had been suggested as fair. But also, the company (not surprisingly) is asking to get paid in Zynga stock instead of cash. While most acquired companies generally prefer getting cash, Zynga, a private company, remains a hot buy and a difficult company to buy a stake in.

Of course, from Zynga’s perspective, paying in stock is not necessarily what it wants and would be part of the negotiations process. The company is scheduled to go public later this year and that stock could turn out to be much more when it reveals its financials.

So is paying over $100 million too much?

If you take a closer look at what things were, you will think that the price is a true bargain. Wasn’t MySpace purchased for $580 in 2005? Absolutely it was but as I’ve written in the past, the way News Corp decided to manage MySpace was terrible and while it might have helped short term profits, the long term impact on traffic, revenues and overall value was predictable.

Why is it a good match?

There are many reasons but one good one would be for Zynga to become less dependent on Facebook. While it’s true that the recently agreed 30% “tax” that Zynga pays to Facebook will likely keep things civil between the two, I would still think that developing “platform independent” games or working through a new social platform such as MySpace could be a big win for Zynga.

News Corp’s problem

Of course, the main issue here is that not many companies will be willing to bid on MySpace. A quickly declining web property can see its value very very fast and being greedy could end up costing the company. Just take a quick look at this chart from Sillicon Alley Insider. This makes a world of difference because few web players will be putting bids for MySpace giving it little leverage. If News Corp ends up waiting too much it will suffer the same fate as AOL when it sold back Bebo recently for $10 million, a property it had purchased for $850 million in March 2008

Will it get done?

I personally still think that Zynga will end up being the company willing to put up the most money for MySpace and if News Corp does end up selling it will be to Zynga. However, the longer that takes, the lower the value will be. As badly as I personally think MySpace should now be valued, I do see the value for Zynga if it can successfully move it from a “music social network” to a “music & games social network”.

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