UPDATE 3-Zynga buys OMGPOP for $200 mln - source

Wed Mar 21, 2012 7:49pm EDT

By Liana B. Baker and Sarah McBride

March 21 (Reuters) - Zynga Inc is buying OMGPOP, maker of the popular game "Draw Something" for about $200 million in its biggest acquisition to date as the company moves to expand its games on mobile devices and Facebook.

A source familiar with the matter told Reuters Zynga bought the New York-based company for $200 million. The company declined to comment on the deal's financials.

Sterne Agee analyst Arvind Bhatia said Zynga overpaid for OMGPOP, a company that does not necessarily have a proven business model, despite having a hit game.

"I'm frankly really surprised Zynga would go out and spend this kind of money," he said.

Bhatia added that the deal could "buy Zynga some new users, but the larger question is, what does it mean for the top and bottom line?"

Zynga declined to say whether the deal was accretive on a conference call on Wednesday, which puzzled analysts.

Zynga's chief mobile officer David Ko said in an interview that Zynga did not buy the company just to become the owner of "Draw Something." He said OMGPOP had "a lot of great ideas in their pipeline."

"It's not just about the game ... It's about what the team has built," Ko added.

OMGPOP, founded in 2006, has 40 employees and is one year older than Zynga. It has already released Internet games such as "Puppy World" and raised millions in venture capital funding, but was considered obscure until about six weeks ago when "Draw Something" hit the mobile market.

"Draw Something" has garnered more than 35 million downloads and risen to the top of the app charts on Apple and Android in 84 countries, according to Zynga. It makes money from advertisements, selling items such as colors in the game and also from a premium version that costs 99 cents.

"It's a game that is No. 1 all around the world today," Ko said.

In the game, players make digital sketches of items or pop culture figures such as Lady Gaga and then compete to guess what the drawings are.

All 40 employees will join Zynga and the company's headquarters will remain in New York, according to a statement.

Zynga will help translate the game into more languages and developed for more Android devices, which will help its global popularity, OMGPOP's chief executive Dan Porter told Reuters.

The sudden success of "Draw Something" on mobile devices could be a boon to Zynga. Investors are watching closely to see if it can diversify outside of Facebook, where it makes most of its revenue. Zynga said in February that it ended last year with 15 million daily mobile users, a five-fold increase from a year earlier.

Zynga, which raised $1 billion in an initial public offering last December, already makes some of the most popular games played on tablets and smart phones such as "Words with Friends" and "Scramble with Friends." But these titles have been unseated by "Draw Something" in the past few weeks on various charts.

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The $200 million deal, which has closed, is Zynga's largest transaction to date and the second-biggest purchase since 2010, when it bought Newtoy Inc, the publisher of "Words With Friends" for $53.3 million.

Hudson Square analyst Dan Ernst said Zynga could easily afford a deal worth $200 million because, since its IPO, it has a market capitalization of $11 billion and $2 billion of cash on its balance sheet.

But it is always a risk acquiring a company that has only produced one well-known game.

"The big risk is how long do they last? But it seems like a high quality team though and doesn't feel like a one-hit wonder," Ernst said.

Large video game companies have been on a shopping spree for smaller outfits in the past few years. Electronic Arts bought the publisher of "Plants vs Zombies" last summer in a deal worth up to $1.3 billion.

Zynga shares closed about 2.5 percent, or 33 cents higher, at $13.72 a share on Wednesday.